REDMOND, WASHINGTON — Microsoft Corporation lost $357 billion in market capitalization on Thursday, January 29, 2026, marking the second-largest single-day value destruction in U.S. stock market history, according to Dow Jones Market Data, after investors recoiled from the tech giant’s record artificial intelligence spending amid slowing cloud revenue growth.
Shares closed down 9.99%, the company’s steepest decline since March 16, 2020, during the COVID-19 market crash, bringing Microsoft’s market cap to $3.22 trillion. The rout exceeded the total market value of more than 90% of companies in the S&P 500 and represented the worst post-earnings drop since July 2013, when the stock fell 11.4%.
Massive AI Spending Collides With Azure Slowdown
The selloff followed Microsoft’s fiscal 2026 second-quarter earnings report released January 28, which showed capital expenditures surged 66% year-over-year to a record $37.5 billion—primarily for AI infrastructure including data centers and processors. Despite revenue of $81.3 billion and earnings per share of $4.14 both exceeding Wall Street expectations, growth in the company’s crucial Azure cloud business decelerated to 39% from 40% in the previous quarter, missing the StreetAccount consensus of 39.4%.
Chief Financial Officer Amy Hood acknowledged during Wednesday’s analyst call that internal AI prioritization impacted Azure’s external sales performance. “If we had allocated all of the incoming GPUs to Azure instead of first-party applications like Copilot and research and development, the KPI would have been over 40%,” Hood stated, according to Business Insider. The company projected Azure growth would stabilize at 37% to 38% in constant currency through March 2026, citing ongoing capacity constraints from AI chip shortages.
Analysts at UBS, led by Karl Keirstead, questioned whether Microsoft’s massive AI investments were delivering returns. “The growth in M365 revenues is not picking up due to Copilot,” the UBS team noted, adding that usage data showed no significant increase. The company revealed that OpenAI accounts for approximately 45% of its $625 billion commercial remaining performance obligations backlog, raising concerns about revenue concentration.
Broader Software Sector Enters Bear Market
Microsoft’s decline dragged down the broader technology sector on Thursday. The iShares Expanded Tech-Software Sector ETF (IGV) plunged approximately 5%, its steepest single-day drop since April 2025, pushing the fund down 21% to 22% from its recent high and into bear market territory. ServiceNow shares tumbled 12%, closing down 11% despite beating fourth-quarter earnings expectations and providing optimistic guidance.
“Good, but not good enough,” Morgan Stanley analysts wrote in assessing ServiceNow’s performance, noting that stable growth aligned with expectations might not overcome prevailing skepticism toward established application vendors. The Nasdaq Composite fell 0.7% on Thursday as investors questioned whether traditional software companies could maintain pricing power amid AI-driven automation threats.
ServiceNow CEO Bill McDermott defended the company’s positioning during Thursday’s earnings call, arguing that workflow software remains essential despite AI advances. “The genuine benefits will emerge when vast amounts of data transition from pilot programs to being integrated directly into the workflows where key business decisions are made,” McDermott explained, according to CNBC.
Meta Surges While Microsoft Struggles
In stark contrast, Meta Platforms shares surged more than 10% on Thursday after the Facebook and Instagram parent reported fourth-quarter revenue of $59.89 billion, up 24% year-over-year, and announced plans to spend between $115 billion and $135 billion on AI infrastructure in 2026. Meta’s AI investments appear to be boosting its core advertising business, with first-quarter 2026 revenue guidance of $53.5 billion to $56.5 billion crushing the $51.4 billion consensus.
The divergent market reactions highlighted investor demands for clear AI monetization pathways. Meta’s advertising-driven model demonstrated immediate returns from AI investments, while Microsoft’s strategy of prioritizing internal AI development over external Azure sales faced scrutiny.
Historic Context and Market Impact
Only Nvidia Corporation has suffered a larger single-day market capitalization loss—$593 billion on January 27, 2025, when the chipmaker’s stock crashed 17% following the emergence of DeepSeek, a Chinese startup’s low-cost AI model that sparked questions about semiconductor demand. Microsoft’s $357 billion wipeout ranks second in U.S. stock market history for single-day losses.
Since Microsoft’s initial public offering in 1986, only a handful of trading sessions—including Black Monday in 1987 and the March 2020 COVID-19 crash—have produced steeper percentage declines than Thursday’s 9.99% drop. The company’s shares remain up significantly over longer timeframes but face near-term pressure as investors reassess AI investment returns.
Forward Look
Microsoft management guided total revenue between $80.65 billion and $81.75 billion for the fiscal third quarter ending March 31, 2026, implying growth of 15% to 17% year-over-year. The company continues to cite capacity constraints limiting its ability to meet AI demand, with Hood indicating that power and data center infrastructure investments made over the past three years should approach balance by the end of fiscal 2026.
Wall Street analysts remain divided on whether Microsoft can demonstrate sufficient returns on its AI capital expenditures to justify current spending levels. “As it becomes increasingly clear that Microsoft is unlikely to achieve a strong return on investment from their extensive AI spending, their shares must be reassessed,” one market strategist told Bloomberg, according to Morningstar.
