Microsoft Plunges as AI Fears Erode $570 Billion in Market Value, Setting Worst Month Since 2000

Microsoft Plunges as AI Fears Erode $570 Billion in Market Value, Setting Worst Month Since 2000​

Microsoft Corp. shares are facing immense pressure, heading toward their worst month since the dot-com era. Investor apprehension regarding how the software giant will navigate the rapidly evolving landscape of artificial intelligence is driving significant selloffs. The stock has seen a sharp decline of 17% in June, putting it on track for its weakest monthly performance since December 2000.

The intense selling pressure has wiped out over $570 billion in market value. The stock hit its lowest closing price since 2023 on Thursday before recovering somewhat on Friday. This decline reflects growing concerns about the balance between Microsoft's massive AI investments and future technological disruption.

Investor Scrutiny: AI Spending vs. Traditional Software Demand​

The current selloff is rooted in dual anxieties surrounding both AI spending and potential AI disruption, according to analysts. Jack Ablin of Cresset Wealth Advisors noted that investors seem to be "shooting first and asking questions later." There remains a significant uncertainty about whether established tools like Microsoft Word or Excel will eventually be rendered obsolete by advancements in AI.

Furthermore, the company's expenditure levels have become a major concern for investors. A worrying trend is that many firms are turning to the bond market to borrow, suggesting they may lack sufficient cash flow to sustain the massive infrastructure buildout required for AI.

Valuation Plummets as Aggressive Capex Raises Doubts​

The stock has consequently been trading at a discount relative to its historical performance and peers. Currently, Microsoft is valued at 19 times estimated profits over the next twelve months. This places it at a rare discount compared to the S&P 500's 20-time valuation and well below its ten-year average multiple of 27.

The company has been pouring aggressively into AI infrastructure, yet concerns remain whether these heavy investments will translate into adequate returns. For example, late April earnings revealed only underwhelming growth in the Azure cloud-computing segment. Microsoft also forecast $190 billion in capital expenditures through December, exceeding Wall Street's expectations.

Analyst Downgrades and Risks to Profitability​

These aggressive capital outlays pose a key risk to profitability, according to Stifel analyst Brad Reback. He stated that given the compression of Azure gross margins due to accelerating capex, estimates currently appear "meaningfully too high." Consequently, Stifel cut its price target on Microsoft shares in June, reducing it from $415 to $400.

The stock's vulnerability has attracted attention from notable investors like Michael Burry. Burry reportedly bought Microsoft call options with strike prices in the low $700s that expire in 2028. This move contributed to a rebound on Friday, sending shares up 5.7% to $372.97, marking their best day since May 2025.

Path to Recovery: Revenue Growth and Epic Opportunity​

Despite the market turmoil, there is substantial optimism centered around Microsoft's expected revenue growth trajectory. Sales are forecasted to expand by 17% in Microsoft's current fiscal year (ending June 30), which marks the fastest growth since 2022. This growth is projected to accelerate further to 18% in fiscal 2028 and 20% in fiscal 2029.

Keith Fitz-Gerald, portfolio manager at the Fitz-Gerald Group, believes Microsoft is undervalued and poised for a rebound, though he remains nervous about AI risks. He noted that the uncertainty surrounding whether a company will still use a traditional Microsoft suite in a few years is a high-stakes question.

Fitz-Gerald maintains that the current price represents "darn close to an epic buying opportunity." He expects the stock to surge like a rocket once AI spending begins translating into improved earnings, though he has kept his position small amid ongoing market uncertainty.