Key Highlights
- Shares of Microsoft (MSFT) have plummeted 32% from their October 2025 peak of $542.07, marking a 20% decline year-to-date and making it the weakest performer among the Magnificent Seven.
- Investment bank UBS lowered its price target from $600 to $510 due to lackluster Copilot adoption rates, though maintained its Buy recommendation.
- Microsoft’s Copilot has secured just 15 million seat subscriptions — falling short of market expectations — with commercial M365 revenue showing no signs of acceleration.
- The tech giant reported impressive 17% year-over-year revenue expansion in its latest quarter, with shares trading near their lowest price-to-earnings multiple in ten years.
- CNBC’s Jim Cramer continues to view Microsoft as a premier AI investment, although he has expressed concerns regarding the company’s partnership dynamics with OpenAI.
The year 2026 has proven challenging for Microsoft thus far. Shares settled at $371.04 on Wednesday — marking the lowest closing price since April 2025 — putting the stock on course for its most significant quarterly drop since the final quarter of 2008.
The technology behemoth is experiencing its most challenging six-month period since 2009. From its October 2025 record high of $542.07, Microsoft has witnessed approximately $1.28 trillion in market capitalization evaporate.
The company currently holds the fourth position among America’s largest corporations by market value, trailing Nvidia, Apple, and Alphabet.
Jim Cramer has maintained a long-term positive stance on Microsoft. Last September, he identified it as one of his “elite eight” stocks, suggesting it would benefit as capital flows from speculative AI investments toward established, quality companies.
However, Cramer has raised red flags about tensions between Microsoft and OpenAI. News surfaced that OpenAI had explored collaboration opportunities with Amazon to diminish its reliance on Microsoft. Earlier this month, Reuters disclosed that Microsoft was contemplating legal proceedings against OpenAI and Amazon regarding a $50 billion arrangement that allegedly breaches its exclusive cloud computing agreement.
Microsoft currently maintains approximately a 27% ownership position in OpenAI.
Copilot Performance Disappoints Investors
The primary catalyst behind the stock’s decline centers on Copilot. Microsoft’s artificial intelligence assistant, integrated within its Microsoft 365 ecosystem, was anticipated to serve as the growth catalyst supporting the stock’s elevated valuation.
Instead, seat subscriptions total just 15 million. Investors globally believe this figure should be substantially higher. UBS observed that commercial M365 revenue growth “should be bending higher and yet it’s not.”
UBS reduced its 12-month valuation target from $600 to $510 this Tuesday. While the firm maintained its Buy rating, analysts indicated the Copilot story “needs to improve in order for the stock to really re-rate higher.”
Microsoft offered some pushback. The corporation informed UBS that Copilot underwent a complete reconstruction over the previous year incorporating enhancements from both OpenAI and Anthropic, and that Q2 engagement metrics were “very good.” Market participants, however, remain laser-focused on revenue generation — not mere usage statistics.
On the competitive landscape, Microsoft is jointly developing a solution called Copilot Coworker in partnership with Anthropic, integrated into Copilot without additional charges to subscribers. UBS characterized this as “the best possible chess move.”
Azure Growth Continues, Though Uncertainties Persist
Beyond Copilot, Azure represents a positive development — albeit with qualifications. Cloud infrastructure revenue jumped 39% year-over-year in the most recent reporting period.
Microsoft communicated to UBS that it remained “very bullish” on Azure demand trajectories. However, the company provided no forward-looking guidance for Azure expansion beyond the current March quarter.
Analysts highlighted that a GPU capacity reallocation — which already pressured shares following Q2 earnings — may continue hampering Azure’s growth momentum in upcoming quarters.
The dramatic selloff has fundamentally reset Microsoft’s valuation metrics. Shares are now trading near their most attractive price-to-earnings level in a decade, after maintaining ratios around 35 times earnings throughout recent years.
Revenue expanded 17% year-over-year in the latest quarter. Wall Street projects 16% growth for the upcoming quarter and comparable performance for the complete fiscal year.
Shares closed at $371.04 on Wednesday, representing a 32% decline from the October 2025 high of $542.07.
