Microsoft(MSFT.US), the much-anticipated AI, has been severely impacted! Investors are facing the harshest winter since 2008.

The Zhitong Finance APP has learned that American tech giant Microsoft (MSFT.US) seems to be at the intersection of two unsettling trends shaking the tech sector, which could lead its stock price to record the worst quarterly performance since the global financial crisis nearly twenty years ago.

First, this nearly $3 trillion market-cap software giant is doubling down on AI capital expenditures, yet Wall Street investment firms are increasingly questioning when the ever-growing investments in AI computational infrastructure will yield more significant returns in revenue and profit growth. Second, the pessimistic narrative of “AI disrupting everything” has led global investors to continue selling off software stocks, as they fear that AI startups like Anthropic and OpenAI are developing AI agents focused on highly efficient workflows that could fully replace SaaS software products from companies like Microsoft.

Jonathan Cofsky, a portfolio manager at Janus Henderson Investors, stated, “There is indeed a concern in the market: customers may not pay Microsoft in the future, but instead turn directly to AI large model suppliers, which could impact Microsoft’s core growth business and at least put pressure on the company’s pricing and profit margins.” However, Jonathan Cofsky remains firmly invested in Microsoft stock.

From a $100 billion gamble to a weakening moat, the company’s stock price fell 24% in the first quarter, likely marking the largest quarterly decline since a significant drop of 27% in the fourth quarter of 2008. So far this year, among the “Magnificent Seven” in the U.S. stock market—those tech companies with the highest investment enthusiasm in recent years—Microsoft has been the weakest performer. A benchmark index tracking this group (the Magnificent Seven benchmark index) has also declined by 13% during the same period.

As shown in the above chart, Microsoft’s stock is set to record its weakest quarterly performance since 2008—since the beginning of the year, the company’s stock has fallen over 24%.

Cofsky stated, “Microsoft has become more capital-intensive.” “If the stock is to perform better in the future, we need more reassurance that the core software business will not experience a substantial slowdown.”

With the recent heavy release of a series of AI agent products focused on highly efficient workflows by leading AI large model companies like Anthropic and OpenAI, the global software stocks have suffered heavy selling pressure. The iShares Expanded Tech-Software Sector ETF (IGV.US), which tracks the U.S. software industry, has significantly dropped about 40% from its historical high set in September, plunging into deep bearish territory.

The pessimistic tone of “AI disrupting everything” since February primarily stems from growing market concerns that AI agent workflows, similar to those of Claude Cowork and OpenClaw (formerly known as Clawdbot, Moltbot), could undermine the entire software empire based on the SaaS seat subscription revenue model, resulting in rare sell-offs that quickly spread to insurance, real estate, trucking, and any other industry that appears to be seat revenue models or labor-intensive business models—markets believe these industries will be completely disrupted by AI.

Microsoft is at the most dangerous crossroads since the AI super bull market

This round of selling has even made the stock appear relatively cheaper compared to tech giants and the Nasdaq index, with a forward P/E ratio below 20 for the next 12 months, marking the lowest since June 2016. As shown in the chart below, Microsoft’s valuation is at a multi-year low.

Microsoft’s valuation multiple is only slightly above the S&P 500 index, but during the recent downturn, Microsoft briefly fell to a valuation multiple lower than the S&P 500, marking the first occurrence since 2015. This highlights that the market has rarely pushed Microsoft’s valuation to “close to the market, and even briefly below the market.”

Although Wall Street remains optimistic that Microsoft will be a long-term winner in the AI technology field, Microsoft must keep pace with the unprecedented AI computational spending arms race of cloud giants like Google and Amazon, a stance that could complicate any short-term sentiment reversal. According to compiled market averages, including leasing, Microsoft’s capital expenditures are expected to reach $146 billion in the fiscal year ending June 2026, a significant increase of about 66% from $88 billion in fiscal 2025; this figure is expected to swell to $170 billion in fiscal 2027 and rise further to $191 billion in fiscal 2028.

Investors are increasingly scrutinizing such large expenditures, especially in the absence of more evident growth acceleration. In the most recent quarter, the much-watched Microsoft Azure cloud computing division even experienced a slight slowdown in growth compared to the previous quarter. Meanwhile, Microsoft’s Copilot AI application product has gained limited traction among users, prompting the company to adjust its operational models related to AI applications to improve this AI software service.

Accumulating headwinds

Ben Reitzes, a senior analyst at Melius Research, has given the stock a “hold” rating. He stated that all of these combined issues reflect that Microsoft is facing a continuously accumulating headwind momentum. On March 23, he wrote in a report to clients: “Microsoft has very limited upside in operating its Azure cloud platform since it is busy fixing the growth rate of Copilot’s business and its own model ecosystem—and this will not just end in a single quarter.”

Among the 67 Wall Street analysts covering Microsoft, 63 have given “buy” ratings, 3 have given “hold” ratings, and 1 has given a “sell” rating. The average 12-month target price for the stock among analysts is $592, which implies over 60% upside potential based on the average target price expectation for the next year. According to institutional data dating back to 2009, this is the highest recorded implied return on investment. The stock’s decline relative to its 200-day moving average is also the largest since 2009.

In analyst Reitzes’ view, the overwhelming “buy” rating for the stock reflects a serious complacency among his Wall Street peers. He believes that the company’s productivity and business process division, as well as the More Personal Computing business segment, also face additional growth risks.

On the other hand, analyst Tal Liani from Bank of America is increasingly bullish on Microsoft. Earlier this week, he resumed coverage of the stock and gave it a “buy” rating, primarily arguing that Microsoft has “lasting multi-year growth potential” in the cloud computing and AI sectors.

These two opposing market views precisely touch upon the tense core surrounding Microsoft stock. The long-term growth prospects are indeed promising, but there are very real execution risks that exist between now and then. Whether these concerns are prescient or significant buying opportunities depends on the observer’s judgment.

Jake Seltz, a senior portfolio manager at Allspring Global Investments, stated, “I believe this stock has high long-term investment value. Its AI strategy will ultimately prove correct, and I believe it will largely be insulated from the most severe fears of AI disruption. Meanwhile, these concerns are creating long-term holding opportunities, especially if you’re willing to be a little more patient.”

What Microsoft is currently facing can be described as “two major squeezing forces” from the AI technology it has high hopes for growth: on one end are defensive actions like heavy asset investments, margin pressures, and large-scale hiring freezes; on the other end are the new and emerging AI startup forces and AI agent workflows challenging the mid-to-long-term growth prospects and pricing power of Office, Copilot, and even Azure.

Therefore, some Wall Street analysts believe that this round of decline for Microsoft is not just an ordinary valuation correction, but rather the market’s first systematic questioning of whether AI will amplify Microsoft or first undermine its long-standing critical software business model. Microsoft’s stock price is heading toward its worst quarterly performance since the fourth quarter of 2008, indicating that for Wall Street, Microsoft is being repriced from “the earliest beneficiary of the AI wave” to “a super tech giant with the most intensive AI capital but insufficient investment return validation.”