Microsoft shares fell 9.9% on July 29, marking the company’s steepest one-day drop since March 2020 and wiping out about $357 billion in market value. The sell-off ranked as the second-largest single-day market cap loss in U.S. stock market history. The pressure did not come from a weak quarter. Microsoft actually beat expectations on revenue, earnings, and profit, yet investors focused on the scale of AI spending and signs of softer cloud momentum.
Strong quarterly numbers failed to calm the market
For its fiscal Q4, Microsoft reported revenue of $81.3 billion, up 17% year over year and above the consensus estimate of $80.3 billion. Earnings per share came in at $4.14, topping the expected $3.97. Net income rose from $24.1 billion a year earlier to $38.5 billion, a 60% increase. On the surface, the quarter looked solid.
Investors were more concerned with what Microsoft is spending to support its AI buildout. Capital expenditures and finance leases reached $37.5 billion in the quarter, up 66% from a year earlier and above analyst expectations of $34.3 billion. About two-thirds of that total went to short-lived assets such as GPUs and CPUs, according to the report. That raised questions about depreciation, payback timing, and how quickly those investments can turn into durable revenue.
Azure growth remained high, but the pace eased
Azure revenue grew 39% year over year in the quarter, slightly ahead of the market expectation of 38.8%, but below the prior quarter’s 40% growth rate. Revenue in the broader Intelligent Cloud segment reached $32.9 billion, up 29%. The forward outlook drew even more attention. Microsoft said Azure growth in the next quarter is expected to come in at 37% to 38%, pointing to a more moderate trajectory.
The company also said AI capacity continues to trail demand and that supply constraints are likely to last through the end of the current fiscal year. That suggests some demand cannot be converted into revenue immediately. CFO Amy Hood argued that capital spending should not be compared directly with Azure revenue, adding that Azure growth would have been much higher than 39% if all newly added GPUs in the first two quarters had been allocated to Azure. Wall Street did not find that explanation convincing.
Backlog rose sharply, but questions remain
Microsoft’s remaining performance obligations, or RPO, climbed to $625 billion, up 110% from a year ago. The figure reflects contracted revenue that has not yet been recognized. Still, the composition of that backlog added another layer of scrutiny. The report said 45% of the total came from commitments tied to OpenAI, leading some analysts to question the quality and sustainability of that demand given OpenAI’s own financial pressures.
The decline in Microsoft also hit other major tech names during the session. Alphabet and Nvidia at one point each lost more than $100 billion in market value, though Alphabet later recovered and closed up 0.7%, while Amazon ended down 0.5%. Matthew Maley, market strategist at Miller Tabak, said it is becoming increasingly clear that Microsoft may not generate a strong rate of return from its massive AI investments. Wedbush analyst Dan Ives said Wall Street had wanted to see lower capital spending and faster cloud and AI monetization, but got the opposite.
The report added that capital spending by Microsoft, Meta, Alphabet, and Amazon is projected to exceed $470 billion in 2026, up from about $350 billion in 2025. Microsoft’s sharp drop has put the market’s focus on AI spending discipline and revenue conversion in plain view.