Microsoft's stock (NASDAQ: MSFT) faced significant pressure, declining 3.5% on Thursday and extending a post-earnings slide that began the prior week. The downturn was catalyzed by a downgrade from investment firm Stifel, which shifted its rating from "buy" to "hold." Analyst Brad Reback cited overly optimistic Wall Street expectations for 2027 and a lack of near-term catalysts as key reasons, slashing the price target from $540 to $392—the lowest among major analysts.
The primary concerns are twofold. First, growth in Microsoft's crucial Azure cloud business is slowing, even as it remains healthy. This deceleration forces a market reassessment of the revenue engine's scaling potential. Second, the company's aggressive spending on AI infrastructure, including data centers and chips to support Copilot and cloud services, is pressuring near-term cash flow and margins, with no clear immediate payback.
The sell-off was amplified by a broader sector-wide rout in technology and software stocks. Investor sentiment turned sharply risk-averse, leading to a rotation away from crowded growth trades. This was intensified after Alphabet's announcement of massive AI-related capital spending, which revived fears of a costly AI arms race. An ETF tracking software stocks fell 15% over seven sessions, with analysts describing trading as "'get me out' style selling."
The event underscores a market shift where even long-term AI winners like Microsoft are being judged more harshly on near-term financial execution. While 96% of analysts still rate Microsoft a buy, the confluence of the downgrade, Azure concerns, AI spending, and the wider tech sell-off has created a perfect storm of negative sentiment.
