Microsoft Faces Multi-Billion Dollar Lawsuit as Short Sellers Retreat

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The legal battle between Elon Musk and the technology giants Microsoft and OpenAI has intensified significantly. In recently filed court documents, Musk is seeking damages that could reach a staggering $134 billion, a sum with substantial financial implications even for a corporation of Microsoft's scale. This development comes as the company's shares closed at $456.66 on Friday, and data reveals a notable pullback in bearish bets against the stock.

At the heart of the dispute are allegations that OpenAI deviated from its original non-profit mission, with Microsoft allegedly facilitating this shift. Musk's legal team estimates the purported unlawful profits from his initial support of OpenAI at between $65.5 billion and $109.4 billion. They claim Microsoft's share of this amount ranges from $13.3 billion to $25.1 billion.

Both OpenAI and Microsoft have pushed back forcefully against these claims, labeling the damage calculation as "fabricated," "unfathomable," and "unprecedented." A federal judge has already denied a motion from the companies to avoid a jury trial. The case is scheduled to commence in Oakland, California this April.

Interestingly, despite this legal overhang, sentiment among short sellers has softened. Short positions against Microsoft declined by 20.6% in December to 52.9 million shares, representing just 0.7% of the float. The days-to-cover ratio stands at approximately 2.5 days, indicating a reduction in the attractiveness of betting against the software behemoth.

Operational Wins and Analyst Confidence

Separate from its legal challenges, Microsoft continues its operational initiatives. On January 14, the company announced its 35th action against cybercrime, detailing the disruption of the RedVDS network. This operation, conducted in coordination with German authorities and Europol, led to the seizure of infrastructure used to send roughly one million phishing messages daily to Microsoft customers. The network is accused of causing an estimated $40 million in damages in the United States alone.

Wall Street analysts appear largely unconcerned by the lawsuit, maintaining a bullish outlook on the equity. An overwhelming 95% of covering analysts rate the stock positively. The consensus price target sits at $630, implying a potential 31% upside from current levels. Morgan Stanley is even more optimistic with a $650 target, while Wedbush Securities cites $625. Although Barclays trimmed its target from $625 to $610, it reaffirmed its Overweight recommendation.

Investor focus now shifts to the upcoming earnings report for the second fiscal quarter of 2026, due on January 28. Market expectations are for an adjusted earnings per share of $3.86, which would mark a 19.5% year-over-year increase. Microsoft has a track record of exceeding analyst estimates, having done so in each of the past four consecutive quarters.