Microsoft’s Rocky Road: Class Actions, a Stealthy Trojan, and Falling Free Cash Flow

Microsoft faces class-action lawsuits over Copilot readiness, a clipboard-hijacking trojan, and a 22% plunge in free cash flow as AI costs mount, sending shares 31% below their 52-week high.

The tech giant is navigating one of its messiest stretches in years. Between a gathering legal storm over Copilot promises, a sophisticated clipboard?hijacking trojan, and a free cash flow that shrank by 22% in the latest quarter, the narrative around Microsoft has shifted from AI triumphalism to a more cautious reckoning. The shares trade at around $380 on the Nasdaq and €329.70 on the Xetra, having shed roughly a fifth of their value since the start of the year.

On the legal front, a wave of class actions began landing on June 13, 2026. Several U.S. law firms accuse Microsoft of misleading investors about the readiness of its Copilot AI products during a window from May 2025 to January 2026. The complaints allege the company concealed significant flaws: weak user guidance, insufficient compute capacity, poor interoperability with existing systems, and in?house AI models that lagged behind rivals in benchmark tests. More damaging still, the lawsuits claim Microsoft diverted billions in capital expenditure – GPUs and CPUs meant for the profitable Azure business – toward Copilot infrastructure. The result, according to the filings, was that many Microsoft 365 users balked at migrating to paid Copilot subscriptions, handing market share to competitors.

The security picture is equally concerning. Microsoft’s own threat intelligence team has warned of a Windows trojan that has been active since February 2026. The malware spreads like a worm, monitors the clipboard, and secretly swaps cryptocurrency wallet addresses during transactions, all while communicating over the anonymized Tor network. The encryption?heavy design makes it unusually resilient to standard defenses. On top of that, the June security update KB5094126 introduced a bug that replaces the actual file name with an internal system name in the permanent deletion confirmation dialog – a confusion that, while not corrupting data, adds to user frustration. A separate known JScript compatibility bug in Windows 11 continues to plague legacy enterprise apps, and the June update KB5095051 has caused Office applications to fail when launched through third?party software.

Financially, the picture is mixed. Revenue climbed 18% to just under $83 billion in the most recent quarter, while net profit touched nearly $32 billion. Microsoft’s AI business has reached an annualized revenue run rate of $37 billion, and the board declared a quarterly dividend of $0.91 per share – the next payout is due on September 10. Yet the costs of the AI offensive are punching a hole in the balance sheet. The free cash flow plunged 22% in the last quarter, weighed down by the enormous capex required to build out AI infrastructure. Industry estimates put hyperscaler spending at over $700 billion this year alone, and Microsoft’s share of that bill is steep. The stock now sits 31% below its 52?week high of $555 (and €478.10), with a relative strength index of 36.5 – hovering just above oversold territory.

In an effort to convert its expensive AI services into recurring revenue, Microsoft is offering corporate customers a 15% discount on three?year commitments to Microsoft 365 Copilot, provided they purchase at least 300 licenses. The move reflects the pressure to monetize capacity that has been built at enormous cost. Meanwhile, CEO Satya Nadella has set his sights on the era of autonomous AI agents, and a new partner agreement is scheduled to take effect on December 1 to align the sales force with that shift.

A more symbolic blow came from the recent rebalancing of the Russell US index. Microsoft slipped to fourth place among the largest US companies by market capitalization, overtaken by Nvidia, Alphabet, and Apple. The changes take effect after the close of trading on June 26, effectively ending Microsoft’s long tenure at the top tier of American corporate giants. For a company that still generates robust core profits but is grappling with legal, technical, and financial headwinds, the message from both the market and the index is clear: the AI bet is a long?term play, and the short?term bills are piling up.