Microsoft's historic plunge: Why the company lost $357 billion in value despite strong results

Core Viewpoint - Microsoft experienced its largest single-day dollar loss in history, with a decline of $357 billion in market value despite reporting strong earnings for Q2 of fiscal 2026, raising questions about investor confidence and future growth prospects [1]. Financial Performance - Revenue for the quarter increased by 17% to $81.3 billion, with adjusted earnings reaching $4.14 per share, surpassing the consensus estimate of $3.91 [1]. - Operating margin stood at 47.1%, and Microsoft Cloud revenue exceeded $50 billion for the first time [1]. Market Reaction - Microsoft shares fell by as much as 12% during intraday trading, closing down 10% at $433.50, marking the seventh-largest percentage decline since the company went public in 1986 [1]. - The stock's performance post-earnings report was notably stagnant, indicating persistent investor concerns [1]. Growth Concerns - Azure cloud platform growth was reported at 38% in constant currency, but fell short of Wall Street's whisper number of 39.4%, contributing to market unease [1]. - Capital expenditures surged to $37.5 billion, a 66% increase year-over-year, highlighting the competitive pressures in the AI and cloud sectors [1]. AI Business Insights - Microsoft 365 Copilot, the AI assistant integrated into Office apps, has 15 million paid users, which is only about 3% of the 450 million paid seats in Microsoft 365 [1]. - Concerns were raised regarding 45% of Microsoft's $625 billion in remaining performance obligations being tied to OpenAI, with $281 billion of that backlog committed to a single customer [1]. Analyst Perspectives - Analysts expressed skepticism about Microsoft's ability to prove the value of its investments in AI, despite a 16% increase in Microsoft 365 commercial revenue [1]. - Some analysts maintained a positive outlook, with Morningstar keeping a $600 fair value estimate and noting that demand for AI and cloud services continues to outpace supply [1]. - Other analysts, like Wedbush, acknowledged the friction between long-term investments and short-term investor expectations, suggesting that 2026 could be a pivotal year for Microsoft [1].