Microsoft’s historic decline: Why the company lost $357 billion in value despite strong results

The “Black Monday” market crash of October 1987, when the Dow fell more than 22%. Antitrust ruling against Microsoft in April 2000, when a federal judge declared the company a monopolist. The write-up of the Surface RT in July 2013, when your bet on 900 million tablets went wrong. The COVID crash in March 2020, when the world shut down and the market fell off a cliff.

Now add to the list of worst one-day stock declines for Microsoft: the company’s better-than-expected earnings for the second quarter of fiscal 2026, last Wednesday, Jan. 28.

Microsoft shares fell as much as 12% in trading the day after the earnings report, before closing at $433.50, down 10%, wiping $357 billion off its market value.

It was the biggest one-day dollar loss in Microsoft’s history and the seventh-biggest decline since the company went public in 1986. The last time Microsoft shares fell significantly after an earnings report was the Surface RT replacement 13 years ago. Stocks moved lower on Friday, leaving big losses to continue into next week.

On top, the quarter itself was strong. Revenue rose 17% to $81.3 billion. Adjusted earnings came in at $4.14 per share, above the $3.91 consensus. The average performance was 47.1%. Microsoft Cloud revenue was over $50 billion for the first time.

“Even in these early innings, we’ve built an AI business that’s bigger than other big franchises that take decades to build,” Microsoft CEO Satya Nadella said on the earnings call.

Anxiety behind the numbers

So what happened? There are several factors at play behind the scenes.

Microsoft’s Azure cloud platform grew 38% in constant currency, ahead of its forecast. But Wall Street’s “whisper number” was 39.4%, and that miss was enough to shake the market.

Capital spending increased to $37.5 billion in the quarter, up 66% from last year, reflecting the scale of the risk Microsoft is taking. The company is competing with Amazon, Google, and others to build data centers and buy chips to compete in AI.

Microsoft 365 Copilotthe AI ​​assistant the company built into its Office apps, has 15 million paid users. That sounds like a lot until you consider that Microsoft 365 has 450 million paid seats. Copilot has reached just over 3% of them.

Microsoft’s vision because the next quarter did not help. Its forecast for the Windows and Devices business was more than $ 1 billion below what analysts expected, as the wave of PC development sparked by Windows 10 End of Life continues and loses steam.

But the number that seemed to worry investors was this one: 45% of Microsoft’s $625 billion in remaining operational obligations (RPO) is tied to OpenAI.

RPOs represent contracts that customers have signed but Microsoft has not fulfilled. A measure of future income that is already locked in. Microsoft’s report showed that nearly $281 billion of that backlog was committed to a single customer, a company that is still burning cash and looking for a sustainable business model.

The question is whether that investment will ultimately pay off in demand from Microsoft’s business customers, not just OpenAI and other AI companies.

In a post before the lead, Judson Althoff, CEO of Microsoft’s commercial business, pointed to customers using AI to solve real problems: Epic produces 16 million patient record summaries per month, Land O’Lakes built an assistant that turns an 800-page plant guide into quick recommendations for farmers, Mercedes-Benz uses AI agents to cut problem diagnosis from days to minutes.

Time to ‘prove it’

But analysts at UBS reflected broader market skepticism, as noted by CNBC. Although Microsoft 365’s commercial revenue rose 16% in the quarter, to more than $24.5 billion, that’s not due to Copilot, they said, citing their checks with customers.

“We think Microsoft needs to ‘prove’ that these are good investments,” they wrote.

Others had high hopes. Morningstar maintained its $600 fair value rating on Microsoft, calling the results “consistent with our long-term thesis.” The stock, which closed Friday at $430, “remains one of our top picks,” wrote analyst Dan Romanoff.

William Blair analyst Jason Ader titled “More to Like” and noted that demand for AI and cloud services continues to outstrip supply. The company also pointed to accelerating business acquisition, noting that the number of customers with more than 35,000 Copilot seats has tripled year over year.

Wedbush analyst Dan Ives maintained an “Outperform” rating but lowered his price target to $575. He cited the tension between long-term investment and the patience of short-term investors.

“The street wanted to see very little spending and quick monetization with cloud/AI,” Ives wrote, “and right out of the gates it’s the opposite.” He described 2026 as the company’s “inflection year” and called the selloff a buying opportunity.

Rick Sherlund has watched Microsoft go through these mistakes before. The longtime Wall Street analyst, who began covering the company when it went public, noted in an appearance on CNBC that the market appeared to be in “bad shape” last week.

Consumer AI tools like ChatGPT are getting the attention, but businesses are really paying. The real driver, says Sherlund, will be agent AI, where software agents interact with business systems and each other, burning massive computing cycles in the process.

In terms of demand, he said, the business AI market is “really taking off.”

Looking at the market situation, Microsoft is no longer in doubt.