Source: GeekPark
Author: Hua Linwu Wang
After investing hundreds of billions of dollars, the result was a plunge back to financial crisis levels in just one quarter.
On the last day of the first quarter of 2026, $Microsoft (MSFT.US)$ the stock price closed the quarter with a staggering 23% drop.
This marks Microsoft's worst quarterly performance since the 2008 financial crisis—worse than Nasdaq’s decline, deeper than Google’s fall, and more severe than Apple or Meta Platforms.
What makes it even more glaring is that this occurred at a time that should have been the peak of the AI era.
A tech giant that has placed its heaviest bets on AI, after pouring tens of billions into the most hyped era of AI, delivered the worst results. Why?
01. The Copilot Predicament
At the heart of the story lies an embarrassing figure—only about 3.3% of Microsoft 365 users have actually paid for Copilot.
Microsoft has almost constantly emphasized "AI transformation" over the past two years. Copilot has been integrated into Word, Excel, Teams, and Outlook, covering nearly the entire Microsoft office ecosystem.
On March 30, just one day before the end of the quarter, Microsoft launched a new product — Copilot Cowork Frontier Edition — while simultaneously introducing a multi-model deep research system called "Critique." On March 17, the company completed a round of executive reorganization, assigning Ryan Roslansky and others to oversee Microsoft 365 and the Copilot platform.
Despite the flurry of activity and high-profile announcements, enterprise customers have responded with lukewarm actions.
Keith Kirkpatrick, research director at Futurum Group, articulated what many CIOs are thinking: "I completely disagree with the AI economics and pricing model for enterprises. Copilot’s monetization logic still relies on additional user licenses, which makes it difficult for corporate clients to accept."
To put it bluntly, enterprise customers are willing to try Copilot but reluctant to pay. This represents a structural issue for Microsoft, not merely a lack of market education.
Melius Research analyst Ben Reitzes described a deeper dilemma: Microsoft must allocate its valuable Azure cloud computing resources to address Copilot's low adoption rates because Copilot carries the growth expectations of its most profitable business line — yet it struggles to generate revenue quickly.
Both areas are burning cash, and neither shows a clear path forward.
02. The OpenAI card is becoming increasingly difficult to play.
If Copilot represents an internal challenge for Microsoft, then OpenAI is another looming threat hanging overhead.
Microsoft’s cumulative investment in OpenAI exceeds $13 billion, securing Azure’s position as the exclusive cloud infrastructure partner for OpenAI. This was a masterstroke two years ago — Microsoft essentially bought the most important ticket in the AI era.
But the situation is quietly changing.
OpenAI is no longer the small team that once relied entirely on Microsoft's resources. It has independently completed multiple rounds of large-scale financing, deployed its own computing power resources globally, and even started bypassing Microsoft to negotiate cooperation directly with corporate clients.
Jonathan Cofsky, a portfolio manager at Janus Henderson, pointed out an increasingly real possibility: 'Clients may choose to work directly with AI suppliers rather than paying Microsoft.'
Tim Green, an analyst at The Motley Fool, was more straightforward: 'The real risk is that OpenAI may, at some point in the future, fail to fulfill its signed large-scale contracts, leaving Microsoft with a lot of expensive AI infrastructure but no customers.'
Meanwhile, Google is deepening its collaboration with Anthropic, and its Gemini series is also performing impressively. $Meta Platforms (META.US)$ It is becoming increasingly successful in the open-source route; and even $Amazon (AMZN.US)$ is steadily building its enterprise AI landscape through the Bedrock platform.
Microsoft’s ‘exclusive advantage’ obtained through capital investment is gradually being diluted by competitors’ diversified strategies.
Even more unsettling is that the main battleground of this AI competition has shifted from 'who has the best model' to 'whose AI can actually be used by enterprises.' In this dimension, Microsoft's position is actually more vulnerable than it appears on the surface.
03. Market patience for 'AI spending' is running thin.
Microsoft is not the first company to face investor skepticism over its AI investments, but it is by far the one that has been penalized the most.
In the fiscal year 2026, Microsoft plans to allocate approximately $80 billion in capital expenditure toward AI infrastructure. This figure itself is not an issue – Google and Amazon’s investments are similarly staggering. The problem lies in the fact that by the end of 2025, investors will have lost patience with granting a "free pass" for AI spending, and they are beginning to demand concrete returns.
And Microsoft's results are still far from impressive.
Azure’s AI-related revenue is indeed growing, but the growth rate has started to slow, and it remains significantly distant from covering the capital expenditures.
Matthew Maley, Chief Market Strategist at Miller Tabak + Co, offered a clear assessment: "It is becoming increasingly evident that Microsoft will not achieve robust ROI from its massive AI investments, and its stock needs to be revalued to a level more consistent with historical fair value."
In plain terms, this means that part of Microsoft’s stock price over the past two years was driven by the premium of AI-driven imagination. That premium is now starting to erode.
Of course, some believe the market reaction is excessive.
Jake Seltz, Portfolio Manager at Allspring Global Investments, holds the opposite view: "I believe there is substantial long-term value in this stock, and its AI strategy will eventually be validated if you’re willing to be patient. Right now presents an opportunity."$Reddit (RDDT.US)$ Many retail investors also argue that Microsoft’s core businesses – enterprise cloud and Office – remain solid, and the market has underestimated their stability.
However, the market is currently voting with its stock price rather than patience. Despite 54 analysts maintaining a buy rating, the stock price has dropped by 23%.
04. The 'Early Bird Trap' in the AI Era
There is a perspective worth serious consideration.
Microsoft, in fact, was the earliest and most heavily invested player in AI — sensing the threat earlier than Google, making a strategic transition earlier than Meta, and integrating AI into its own products earlier than Amazon.
However, being the 'first mover' in a technological wave does not always guarantee success; sometimes it carries the highest risks. This is because the first mover must bear the cost of 'educating the market,' invest substantial resources before the business model is proven, and make bets on a direction before the technology path stabilizes.
Jason Lemkin, founder of SaaStr, has an even more radical view: 'Traditional SaaS is either in decline or entering its terminal phase.'
This judgment is particularly piercing for Microsoft — as it fundamentally earns profits through the SaaS subscription model, with Office 365, Azure, and Teams all being products of this logic. If AI truly disrupts the traditional SaaS payment rationale, Microsoft's moat could turn from an advantage into a burden.
Adding to the irony, the very AI tools that might disrupt Microsoft are likely powered by OpenAI's technology, which Microsoft has heavily invested in, and run on Microsoft’s own Azure servers.
This predicament might be too harshly labeled as being a 'patsy,' but describing it as 'caught between a rock and a hard place' would be fairly accurate.
A quarterly plunge is not merely Wall Street punishing a company for short-term performance; rather, it reflects the entire market reevaluating a fundamental question:
In the AI wave, is there an inevitable relationship between 'investing the most' and 'reaping the greatest benefits?'
Microsoft's dilemma may well represent the most expensive experiment in addressing this question.
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Editor /rice