Microsoft (MSFT) The post-earnings crater on Thursday sent other indexes into pullback mode despite the narrow nature of their weakness. Although the company lost a calmer 4% after-hours on Wednesday following its spectacular results, Redmond, Wash.-based Microsoft fell a solid 12% in the afternoon of Thursday’s regular session.
Analysts blamed nerves about a significant enhance in the company’s capital expenditure, which is expected to enhance by two-thirds in 2026 as it spends lavishly on building more data centers equipped with the latest AI chips. Additionally, some blamed the company’s closeness to OpenAI, which is struggling with uncertainty over its funding prospects.
The NASDAQ 100, approaching last October’s highs, fell more than 1% but found support just above the 50-day elementary moving average. The broader NASDAQ Composite was down 1.6% by 1:30 p.m. ET, while the S&P 500 was down 0.6% and the Dow barely budged, falling 0.2%. Bitcoin also lost over 6%, with its price dropping to $83,600 at the time of writing.
Microsoft falls sharply after impressive earnings results
Microsoft’s large sell-off wiped out $400 billion in market capitalization, the second-largest single-day loss in market capitalization in U.S. stock history after Nvidia’s Jan. 27, 2025 trading session, in which $600 billion evaporated. In percentage terms, this will be the seventh largest sale in the company’s history.
So this is quite intriguing considering that Wednesday’s post-market earnings release for the fiscal second quarter of 2026 looked impressive at first glance. Microsoft earned $4.14 in adjusted EPS, up $0.22 or 5.6% from the consensus estimate. Revenues of $81.3 billion also topped the consensus estimate.
So what gives?
Evercore analyst Kirk Materne lowered his price target from $640 to $580 but maintained an “Outperform” rating.
“While Azure’s growth at this level remains impressive and continues to suggest market share gains, capital expenditures are up 66% year-over-year,” Materne wrote, “and investors are increasingly looking for clearer evidence that these increased investments are translating into incremental acceleration for Azure.”
Materne pointed out that Azure Cloud’s 38% growth was impressive in itself, but some sophisticated investors expected even greater growth due to the vast capital expenditure.
While remaining performance liabilities, excluding OpenAI, increased 28% to $345 billion, some investors are certainly concerned that the backlog to OpenAI is approximately 45% of the total backlog.
“[O]lingering concerns about OpenAI’s funding prospects and Microsoft’s involvement continue to be a slight overhang,” Materne noted. “We believe these concerns should diminish over time, but they remain a drag today.”
OpenAI, which launched the vast AI language model (LLM) that started the current AI rally, still has large dreams and empty pockets. Microsoft, Amazon (AMZN) AND Nvidia (NVDA) are currently in talks to invest as much as $60 billion in OpenAI to keep the party going while the Japanese company SoftBank (SFTBY) it is said to be considering another $30 billion.
As Microsoft continues to pump its profits into data center expansion, its gross profit has fallen from 72% to 67% since the end of 2024.
RBC and Morgan Stanley maintained price targets of $640 and $650, respectively, but Morgan Stanley’s client note did express concerns.
“The company’s ability to exceed targets in a tight supply environment will be largely dictated by the pace of capacity expansion, which may be less volatile than investors imagine,” Morgan Stanley’s Keith Weiss wrote. “In addition to physical constraints, Microsoft management is making allocation decisions when supply is tight [of] GPUs, balancing the growing needs of first-party applications like M365 Copilot and internal research efforts, and the growth of the Azure platform.”
Other software resources such as Service now (NOW), HubSpot (HUBS), ServiceTitan (TTAN) AND SAP (SAP) There were also significant discounts on Thursday.
Daily Microsoft stock chart and technical analysis
Maybe we should have seen this coming? In July and October 2025, MSFT stock hit a double top near $553. Following recent weakness, the 50-day elementary moving average (SMA) fell below the 200-day SMA last week.
But under the bridge it’s just water and here we are. The first thing to notice in the daily chart below is that MSFT stock has fallen below its bullish gap on May 1, 2025. This leads to the uneasy expectation that Microsoft’s stock price is about to close this gap, hitting its April 30, 2025 high of $396.66. This means that MSFT still has 6.5% to spare before natural support appears. While bears will note that the floor of the April 2025 tariff selloff is much lower at $344.79, there is no theoretical reason for Microsoft to move in this direction.
As it stands, the Relative Strength Index (RSI) is currently at 31, which makes MSFT stock a technical buy for most risk profiles. As RBC’s Rishi Jaluria wrote in a client note: “In our view, MSFT’s AI impact and cloud growth remain underappreciated, and we will be buyers in the event of a pullback.”
