Microsoft’s $570 Billion Rout Draws Contrarian Bet from Michael Burry as AI Capex Worries Overshadow Strong Earnings

Microsoft's revenue jumped 18% to $83B but stock saw worst month since 2000, losing $570B in value. Heavy AI spending and valuation compression weigh on shares.

Microsoft delivered an 18% revenue surge to nearly $83 billion last quarter and operating profit growth of 20%, but the stock has just staggered through its worst month in more than two decades. The disconnect between strong operational metrics and a savage sell-off has erased over $570 billion in market value since the start of June, with shares closing Monday at €322.80 — barely above their 52-week low.

Over the trailing 30 days, the stock dropped roughly 15%, pushing the year-to-date decline to about 19%. The rout ranks as the steepest monthly percentage slide since December 2000, while the sheer magnitude of market-cap destruction echoes the 2008 financial crisis, when over $530 billion evaporated in a single month, according to a separate measure.

The sell-off has driven Microsoft’s valuation to just 19 times expected earnings, well below its 10-year average of 27. Analysts at Stifel responded by trimming their price target to $400 from $415, citing margin pressure in the Azure cloud division. The cautious move reflects a broader market reassessment of the company’s aggressive artificial-intelligence spending plan.

Microsoft has committed $190 billion to AI infrastructure through the end of 2026, a spending spree that already squeezed free cash flow by about 10% last quarter. Investors worry the heavy outlays for data centers and chips may not translate into proportional profit gains, especially if new AI tools cannibalize demand for traditional software.

Yet the business continues to produce eye-catching numbers. The Copilot AI assistant has reached an annualized revenue run rate of $37 billion, representing 123% year-over-year growth. Cloud revenue expanded 40% in the most recent period, underscoring the underlying demand for Microsoft’s platform.

The tension between these bullish operating trends and the punishing stock performance has attracted high-profile contrarians. “Big Short” investor Michael Burry acquired long-dated call options on Microsoft, with contracts expiring in December 2028 at a strike price near $700 — almost double the current share price. Bill Ackman had already built a $2 billion position earlier this year.

Additional headwinds are emerging outside the financials. Italy’s antitrust authority began reviewing Copilot in late June, following user complaints about automatic installation on corporate machines, price increases, and a lack of opt-out mechanisms. Microsoft is also restructuring its Xbox gaming division, ending contracts with several external vendors in what insiders describe as the biggest job cuts in the unit’s 25-year history.

The next test comes at the end of July, when Microsoft reports fiscal fourth-quarter results. Investors will demand evidence that the operating momentum can offset the massive infrastructure costs. A strong full-year outlook could vindicate Burry and Ackman’s bets, but until then the stock remains trapped in a classic valuation correction — caught between stellar earnings and a market that wants proof the AI billions will deliver lasting margins.