Microsoft Stock Sheds 20% Year-to-Date as $190 Billion AI Capex Plan Raises Margin Alarm

Microsoft shares fall over 20% in 2025 as investors worry about $190B AI capex, cloud margin compression, and hawkish Fed despite 40% Azure growth.

Wall Street's rotation out of heavyweight technology stocks has caught Microsoft in a downdraft that even a string of double-digit earnings growth could not halt. The software giant's shares closed at 321.75 euros on Wednesday, leaving them more than 20% below the level at which they started 2025 and barely a hair above the year's trough of 309.35 euros. From the 52-week peak of roughly 478 euros, the stock is now a full 33% lower.

The disconnect between quarterly results and market sentiment is stark. In its most recent fiscal period, Microsoft pushed revenue up 18% to nearly $83 billion, while net profit climbed to $31.8 billion. The cloud business continued to fire on all cylinders: segment revenue rose 29%, with Azure alone leaping 40%. Yet none of that was enough to lift the stock.

Instead, the market is fixating on the cost side of the ledger. Microsoft's cloud gross margin slipped to 66%, compressed by the rapid build-out of artificial intelligence infrastructure. The company has told investors it plans to pump roughly $190 billion into capital spending for calendar 2026, a figure that is climbing further as component prices rise. Management has warned that capacity constraints will persist at least through the end of that year.

That kind of capital intensity is drawing sharp questions from investors who want to see when the spending will translate into sustainable profit growth. Compounding the concern are expectations of a more hawkish Federal Reserve: market pricing now implies at least one interest-rate increase by December, a headwind that tends to depress the present value of the distant future earnings that capital-hungry tech companies depend on.

Technically, the picture has deteriorated. Microsoft's shares are trading more than 16% below their 200-day moving average, and the relative strength index stands at 35.8, a zone that signals weak momentum. The company is increasingly being treated by the market not as a safety-stock software name but as a capital-intensive infrastructure provider—a re-rating that will require hard evidence of margin recovery and a return on the record levels of AI investment before it reverses.