Amid the intense AI competition among major technology giants, Microsoft appears to be caught in the middle of multiple pressures, leading it to become the worst-performing stock within the Magnificent Seven. Over the past year, MSFT shares have declined by -3.35%, while the group's leader, Google, has gained more than +85.61%.
The main pressures come from two areas: first, the continued heavy investment during a time when Wall Street is questioning when the massive spending on AI infrastructure will start to significantly boost revenue; second, investor concerns that AI startups such as Anthropic and OpenAI are developing AI agents that could replace some of Microsoft’s existing software in the future.
According to a Bloomberg report, Microsoft's performance outlook for this quarter may be the worst since the 2008 global financial crisis. In the first quarter of last year, Microsoft stock fell by -25% and is heading toward its sharpest decline since Q4 2008, when it dropped 27%, making it the worst performer among the Magnificent Seven.
Moreover, this stock price decline has made Microsoft’s shares appear significantly "cheaper," currently trading below 20 times projected earnings over the next 12 months—the lowest level since June 2016. Although this is still slightly above the S&P 500 index, the stock has traded below the broader market for the first time since 2015.
"Microsoft has become a company requiring increasingly large investments, and for the stock to recover in the future, investors need more confidence that software business growth will not slow down," said Jonathan Cofsky, portfolio manager at Janus Henderson Investors.
While Wall Street still believes Microsoft will be a long-term winner in the AI era, in the short term, the company must continue to compete in the infrastructure game, where other major players also invest huge sums, possibly delaying renewed investor confidence.
Microsoft is expected to spend a total investment (including leases) of up to $146 billion in fiscal year 2026 (ending June), up about 66% from $88 billion in 2025, with estimates rising to $170 billion in 2027 and $191 billion in 2028, according to Bloomberg.
However, investors are increasingly questioning such massive spending, especially since clear revenue results have yet to materialize.
In its latest earnings, Microsoft’s cloud business Azure—a core segment—showed a slight slowdown in growth compared to the previous quarter, while AI services like Copilot have not gained the expected popularity, prompting the company to restructure its AI teams to accelerate development.
Microsoft has heavily invested in AI startups like OpenAI while having its own Copilot AI agent feature for enterprises since 2023, but it still cannot compete effectively with new players like Anthropic or even OpenAI itself.
Ben Reitze, an analyst at Melius Research, said, "These issues reflect growing resistance to Microsoft. Azure’s growth potential may be limited as the company struggles to fix Copilot and its AI models, problems unlikely to be resolved within a single quarter."
On the other hand, Tal Liani, an analyst at Bank of America, offers a positive outlook, noting Microsoft’s strong long-term growth prospects from both cloud and AI businesses.
Sources:Bloomberg,Financial Times
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