I didn't see this Microsoft (MSFT 0.28%) stock sell-off comingat least not the nearly 30% share price drop in the last six months.
Like many investorsI spent the better part of 2024 and early 2025 believing Microsoft stock was essentially untouchable. I didn't buy any while it ran up more than 80% during that timeand thought I had missed the bus. The company took a stake in OpenAIwas embedding Copilot across its entire product suiteand was generating cash flows that most businesses only dream about. The Azure cloud business was growing. Then 2026 hitand the stock plunged in the first quartermarking its steepest drop since the 2008 financial crisis.
Image source: Getty Images.
What the market got wrong about Microsoft
Ialong with the rest of the marketunderestimated how much of Microsoft's valuation was built on a story rather than a timeline. Subjectivelyit seems like investors were pricing in frictionlesshigh-margin artificial intelligence (AI) growth. What they got instead was the reality of a capital expenditure arms race.
Microsoft is expected to spend $146 billion on AI infrastructure in fiscal 2026. Quarterly capital expenditures nearly doubled year over year to $29.9 billion. And the company's OpenAI investment losses reached $3.1 billion in a single quarterup from $523 million a year earlier.
Microsoft still beat earnings estimates. It didn't matter. The market wasn't grading the company on what it delivered last quarter; it was reassessing whether the math on AI investment would ever yield the margins investors were expecting. That's a very different questionand the market didn't take it seriously enough.
NASDAQ: MSFT
Key Data Points
Why I'm chomping at the bit to buy in
After the sell-offMicrosoft isn't being priced for perfection anymore. The multiple has compressed meaningfullysentiment has cooledand expectations around AI have shifted from hype to scrutiny. That's exactly the kind of reset long-term investors should pay attention to.
At the same timethe "Great Rotation" is real. Capital has been flowing out of mega-cap tech and into more cyclicalasset-heavy sectors like industrialsenergyand materialsas investors prioritize near-term cash flows and tangible demand over long-duration growth narratives.
But the underlying business for Microsoft didn't break. Azure is still growingenterprise demand hasn't disappearedand Microsoft remains deeply embedded across global IT infrastructure. I do not see that changing. What changed is the market's willingness to give it the benefit of the doubt up front.
Ironicallythe same factors that drove the stock down (massive AI spendingnear-term margin pressureand uncertainty around returns) are also what make this moment compelling. If even a portion of that $100-plus billion investment translates into durable revenue streamstoday's concerns start to look like growing pains.
Microsoft is no longer a story stock. It's a world-class business being repriced in real time. And that's whyfor the first time in a whileI don't feel like I missed the bus. I want to see this ticker get lower. Investors are finally getting a shot at a better entry point that will allow them to tap into long-term growth.
