Stock prices tend to fluctuate over time, but microsoft (NASDAQ:MSFT) is going through a huge crisis, at least by the tech giant’s standards. Microsoft shares have fallen more than 25% below their peak, the stock’s second-worst drop in the last 10 years.
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A proven, world-class technology giant like Microsoft does not go down easily. The decrease indicates problems; Wall Street is sounding the alarm. So what exactly is happening?
Several factors are simultaneously affecting the stock. Here’s what they are, what they mean, and whether Microsoft stock is likely to trade up or down a year from now.
For starters, Microsoft finds itself between a rock and a hard place with artificial intelligence (AI). It has invested in and partnered closely with OpenAI, the developer of ChatGPT. Microsoft has come to rely on OpenAI, which currently accounts for $281 billion of Azure’s $625 billion cloud computing portfolio.
However, OpenAI is struggling to fend off competition and scrutiny has intensified over its ability to fund spending commitments of more than $1 trillion while its business burns billions. Microsoft itself plans to spend $120 billion on AI infrastructure this year alone, a potential disaster if OpenAI fails.
Finally, software has become one of the first industries where AI could really make a splash. There has been a widespread sell-off in software stocks, and Microsoft’s legacy Windows and productivity software are crucial cash cows. Add it all up and Microsoft is under more pressure than at any time in recent memory.
There’s no telling how low Microsoft can fall. Instead, investors should try to assess how likely worst-case scenarios are.
Microsoft has acknowledged that it is developing its own AI models to diversify away from OpenAI. For OpenAI, the company is working to raise $100 billion in new financing to stabilize the business for the next few years. It doesn’t seem likely that OpenAI will simply collapse. It has also begun to fight back against its competitors, freeing up Frontier to develop AI agents, a new Codex model for writing code, and acquiring OpenClaw, a popular open source AI agent program.
In the case of Microsoft, investors may underestimate how catchy its software is. For example, the world practically stopped in July 2024 when a third-party cybersecurity bug caused a global outage in Windows computer systems. It still seems like a tremendous effort for companies to eliminate such essential software in favor of unproven AI, especially now that Microsoft is integrating AI features into its products.