Microsoft Faces 24% Q1 Stock Drop as CapEx Jumps to $146 Billion
Microsoft’s stock has plummeted 24% in Q1, on track for its worst quarterly performance since 2008, as intensified capital expenditures weighed on its earnings multiple. The company plans $146 billion in fiscal 2026 CapEx—a 66% increase from fiscal 2025—with AI startup competition raising concerns over product displacement and margin pressure.
1. Q1 Performance & Stock Decline
Microsoft’s shares fell 24% in the first quarter, marking the steepest quarterly drop since the 27% decline in late 2008. This compares with a 13% slump for the Magnificent Seven tech index, making Microsoft the weakest performer among its peers.
2. Capital Expenditure Surge
The company’s capital spending, including leases, is forecast to reach $146 billion in fiscal 2026, up 66% from $88 billion in fiscal 2025. Analysts project CapEx will grow further to $170 billion in fiscal 2027 and $191 billion in fiscal 2028.
3. AI Competition & Margin Pressure
Investors worry that AI vendors such as Anthropic and OpenAI may bypass Microsoft’s software offerings, pressuring pricing and margins. Microsoft’s Azure growth decelerated slightly last quarter, and Copilot’s limited user uptake prompted an AI operations shake-up.
4. Valuation & Outlook
The stock now trades below 20 times forward earnings, its lowest multiple since June 2016, and at a discount to the S&P 500 for the first time since 2015. Sustained software growth and returns on AI infrastructure investments will be key to reversing sentiment.