Microsoft dragged down the benchmark with an 12% slide, which would be its worst day since March 2020. The company saw more than $400 billion wipeout in stock market valuation, which is the second-largest in history. Shares of the software giant were down 12% as of 1:20 p.m., their biggest intraday plunge since March 2020, erasing roughly $424 billion in market value. The only larger one-day valuation destruction in stock market history was Nvidia’s $593 billion rout in January last year after the launch of DeepSeek’s low-cost AI model. According to Bloomberg, the roughly 12% drop in Microsoft’s share price is among the worst in its history. Since it’s initial public offering in 1986, the stock has only seen a handful of days with bigger declines, including on Black Monday in 1987, during the dot-com bubble, and at the height of the Covid 19 fueled selloff in 2020. The software giant has also issued soft guidance on operating margin for the fiscal third quarter.

What’s worrying Microsoft investors

Microsoft shares dropped as the company seemingly is struggling to justify recent spending plans to investors and showed a slowdown in its cloud segment. In fact, the money flowing into AI and new technology has been a major source of debate on Wall Street. Investors increasingly want to see that companies show signs that they are reaping rewards from the massive spending over the last year. Here Microsoft’s results showed a 66% rise in capital expenditures in its most recent quarter to a record $37.5 billion, as Microsoft supports demand for its cloud and AI segments.This rise in Capex comes at a time when growth at its closely tracked Azure cloud-computing unit slowed from the prior quarter. Investors reportedly closely watch the segment as a stand-in for measuring enterprise AI demand. “Since it is becoming even more evident that Microsoft is not going to garner a strong ROI from their massive AI investment, their shares need to be revalued back down to a level that is more consistent with its historic fair value,” told Matthew Maley, Chief Market Strategist at Miller Tabak + Co to Bloomberg.The company also acknowledged that it is struggling with compute capacity constraints as demand continues to outweigh supply. In a letter to employees, Microsoft finance chief Amy Hood said Azure would have grown 40% if the company had funneled all of its new graphics processing unit chips in the first and second quarter into its Azure business. She also said the company is balancing having “incoming supply better meet growing Azure demand” with product innovation and growing first-party AI usage in services like GitHub Copilot and M365 Copilot.

OpenAI worries rub on Microsoft

The growing fears about Sam Altman’s OpenAI too seem to be worrying Microsoft investors. According to CNBC, Microsoft’s demand backlog rose to $625 billion, up 110%, which included a $250 billion cloud agreement with OpenAI during the period. The ChatGPT maker accounted for 45% of its commercial remaining performance obligations. Analysts at Evercore ISI said “concerns about OpenAI’s ability to meet funding commitments” likely contributed to the post-earnings stock spiral but called the sentiment “overblown.”