New York, Feb 10, 2026, 09:41 EST — Regular session
- Microsoft shares jumped roughly 3% in early trading, recovering part of their recent slide.
- Melius downgraded the stock to “hold,” cautioning that AI investment may put pressure on free cash flow.
- This week, investors are keyed in on U.S. jobs and inflation figures—signals they hope will clarify the outlook for interest rates and tech stock valuations.
Microsoft (MSFT.O) jumped 3.1% to $413.60 early Tuesday in New York, shrugging off a new Wall Street downgrade that underscored mounting concerns over the price tag of its AI ambitions.
The rebound is significant. Microsoft has turned into a key signal for a trade that’s not as easy to stick with these days—big, reliable cash machines pouring money into AI to stay ahead. That spending is starting to draw tougher questions from investors: what’s the payoff, and how long will it take?
Arguments are intensifying over free cash flow—the money remaining after capital expenditures, or capex, which pays for data centers and other big-ticket assets. If capex outpaces revenue growth, even the largest companies can see their numbers muddied.
Melius Research on Monday downgraded Microsoft to “hold” from “buy,” putting a $430 price target on the tech giant and citing what it sees as structural AI risks capping further gains. Analyst Ben Reitzes, in a note, warned that if cash generation doesn’t loosen up, equity values could end up as “nothing more than ‘vibes’ on AI prospects.” 1
Reitzes didn’t spare Copilot, Microsoft’s workplace AI assistant. With fresh competition out there, he argued Microsoft “may need to give Copilot away just to stay relevant.” If that happens, he warned, growth and margins for the Productivity segment could take a hit. 1
Microsoft posted $81.27 billion in revenue for the December quarter, according to its Jan. 28 earnings release. GAAP net income landed at $38.46 billion, numbers that also capture effects from its OpenAI investments, the company said. 2
During the earnings call, Chief Executive Satya Nadella noted Microsoft Cloud revenue cleared $50 billion for the first time—a 26% jump from last year—driven by strong demand for both infrastructure and AI services. 3
Following those results, Reuters said Microsoft poured a record sum into AI during the quarter, but cloud-computing growth lost momentum. Investors, hoping the spending and its OpenAI deal would deliver sooner, were rattled. 4
But a single positive session doesn’t wipe out the risks. Should capex continue rising and Azure’s growth falter, Microsoft’s margins could take the initial blow. After that, the stock’s valuation might feel pressure — particularly if competitors attract big enterprise clients by rolling out AI tools that are less expensive or speedier.
Next up on the macro front: the U.S. Employment Situation report drops Wednesday at 8:30 a.m. ET; then comes the Consumer Price Index on Friday, also at 8:30 a.m. ET. Both reports have the potential to jolt rate forecasts, and tech names have been locked in on the data feed. 5
