More than $400 billion was wiped from Microsoft’s market capitalisation on Thursday as investors reacted sharply to the scale of the company’s spending on artificial intelligence infrastructure, triggering the second-largest single-day loss of value ever recorded in global equity markets. The sell-off followed the software giant’s quarterly earnings report, which revealed surging capital expenditure tied to its expanding AI ambitions.
The downturn began after Microsoft disclosed that capital spending reached $37.5 billion in the three months to the end of December, a steep increase from $22.6 billion in the same period a year earlier. The company’s cumulative investment in AI technologies since the 2024 financial year has now exceeded $200 billion, intensifying concerns on Wall Street about whether returns will keep pace with escalating costs.
The market reaction came despite a strong financial performance. Microsoft reported a 60 per cent rise in net income to $38.5 billion and a 17 per cent increase in quarterly revenue to $81.3 billion, beating analyst expectations of $80.3 billion. Nevertheless, shares fell about 6 per cent in after-hours trading on Wednesday as investors focused on the scale of ongoing investment rather than headline profitability.
Selling accelerated on Thursday as markets fully absorbed the earnings figures. By the close of trading in New York, Microsoft shares had dropped $48.13, or 10 per cent, to $433.50, marking the company’s largest one-day percentage decline since March 2020. The fall ranks as the second-largest loss of market value in history, surpassed only by Nvidia’s $593 billion plunge last year following the debut of DeepSeek’s low-cost AI model.
The slide erased months of gains for Microsoft, whose market capitalisation had surpassed $4 trillion in October before falling to about $3.2 trillion by Thursday night. The decline also weighed on the technology-heavy Nasdaq Composite, which closed down 172.33 points, or 0.7 per cent, at 23,685.12.
Analysts said the sell-off reflected growing unease over the balance between spending and growth. Goldman Sachs noted that the market response pointed to “another consecutive quarter of higher-than-expected capital expenditure without a commensurate increase in Azure growth rates,” highlighting concerns about the performance of Microsoft’s cloud computing division.
Microsoft has been widely viewed as an early leader in the AI race, aided by its early investment in OpenAI. The company owns a 27 per cent stake in the ChatGPT developer, whose technology underpins many Microsoft products, including M365 Copilot. A recapitalisation of OpenAI last year also boosted Microsoft’s earnings after changes in how the stake was accounted for.
However, competition in the AI sector has intensified. Strong interest in Google’s latest Gemini model and the emergence of autonomous AI agents such as Anthropic’s Claude Cowork have raised questions about Microsoft’s ability to maintain its advantage, both in AI services and in its core software offerings.
Microsoft’s spending spree is part of a broader industry trend. This year, Microsoft, Amazon, Alphabet and Meta Platforms are expected to spend more than $500 billion combined on capital expenditures, up from about $366 billion in 2025, according to Bloomberg data. The scale of these investments has heightened scrutiny from investors seeking clearer evidence of long-term returns.
The reaction to Microsoft’s results contrasted sharply with the market response to Meta Platforms’ earnings, released on the same day. Meta warned that annual capital expenditure would rise to between $115 billion and $135 billion, driven by AI infrastructure costs, higher depreciation and rising operating expenses, yet investors welcomed the company’s outlook.
Meta’s chief executive, Mark Zuckerberg, said the surge in spending was aimed at building the AI infrastructure needed to pursue superintelligence, a theoretical point at which machines could outperform humans. The company forecast total expenses of up to $169 billion in 2026, fuelled in part by rising salary costs as it competes for elite AI talent.
Shares in Meta closed up $69.58, or 10.4 per cent, at $738.31, underscoring a widening divergence in how investors are judging Big Tech’s AI bets and the risks they are willing to tolerate.
