New York, Feb 5, 2026, 16:03 (EST) — After-hours
Microsoft shares dropped 5.2% on Thursday, closing at $392.74. The stock fluctuated between a low of $392.65 and a high of $410.80 during the session. Trading volume hit roughly 50.7 million shares.
The selloff intensified pressure on a beleaguered software sector, battered over several days as investors weigh whether rapidly advancing AI technologies will erode demand for traditional software. The S&P 500 software and services index dropped 3.1% on the day, set to lose roughly $1 trillion in market capitalization since Jan. 28, Reuters calculations show.
Concerns have morphed into a wider gauge of just how much big tech can pour into AI before investors push back. Alphabet’s eye-popping plan to spend up to $185 billion on capital investments in 2026 dragged the Nasdaq down to its lowest point since November. A strategist from U.S. Bank Wealth Management flagged the market’s “volatility” amid doubts over whether that level of investment “will translate” into tangible results. Reuters
Stifel analyst Brad Reback cut Microsoft to “Hold” from “Buy,” slashing his price target sharply to $392 from $540. He said it’s “time for a break,” citing limited near-term Azure growth. Reback highlighted supply constraints, rising competition from Google’s cloud and AI products, plus Anthropic’s growing momentum. Investing.com
Stifel raised its fiscal 2027 capital expenditure forecast to around $200 billion, well above the Street’s $160 billion estimate. At the same time, the firm trimmed its fiscal 2027 gross margin projection to about 63%, compared to the consensus near 67%. They argue Microsoft is entering a new spending phase. Capex refers to investments in things like data centers and chips, while gross margin represents the portion of sales remaining after direct costs.
Microsoft is working hard to convince investors that its AI investments will drive lasting revenue growth, not just higher expenses. In its fiscal second-quarter report, the company revealed a 39% jump in Azure and other cloud services revenue. Its Intelligent Cloud segment pulled in $32.9 billion, marking a 29% increase. Microsoft also handed back $12.7 billion to shareholders through dividends and share buybacks during the quarter.
Microsoft’s latest results highlighted the pressure it’s under: Reuters reported the company shelled out $37.5 billion on capital expenditures in the October-December quarter—up nearly 66% from the previous year—with roughly two-thirds of that spent on computing chips. For the current quarter, Microsoft projects Azure revenue to grow between 37% and 38%. CFO Amy Hood cautioned that rising memory-chip costs will likely drag on cloud margins over time.
The pullback works both ways. If Microsoft manages to relieve Azure capacity bottlenecks and delivers clearer returns from products like Copilot, selling pressure could fade fast. On the other hand, if spending climbs and competition intensifies, the market might continue to push the multiple lower.
Investors are shifting focus to upcoming macroeconomic triggers and potential additional analyst target cuts following Thursday’s downgrade. The U.S. Labor Department has adjusted its data schedule post-government shutdown: the January employment report is set for release on Feb. 11, while the January CPI will come out Feb. 13.
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