Microsoft Plunge Sinks Markets as AI Spending Fears Overshadow Earnings Beat

2026-01-30 economy

New York, Thursday, 29 January 2026.
Indices retreated Thursday as Microsoft plunged over 11%—its worst day since 2020—despite beating estimates, as a massive $37.5 billion quarterly capital spend raised concerns about AI returns.

Market Reaction: A Tech-Led Retreat

United States equity markets faced significant headwinds during Thursday’s trading session on January 29, 2026, with the Nasdaq Composite leading the decline, dropping 2% to 6,908.96 [6]. The S&P 500 also retreated, falling 1% and pulling back from the 7,000 milestone it briefly touched earlier in the week [6]. The sell-off was undeniably anchored by Microsoft (MSFT), which saw its shares plummet approximately 11.45% to trade at $426.71, marking the company’s worst single-day performance since March 2020 [5]. This sharp downturn occurred despite the technology giant reporting fiscal second-quarter results on Wednesday evening that exceeded Wall Street’s expectations for both revenue and earnings [5][7].

Earnings Beat Overshadowed by Expenditure

In its report released January 28, Microsoft posted revenue of $81.27 billion, surpassing the consensus estimate of $80.26 billion, and delivered adjusted earnings per share of $4.14 against expectations of $3.97 [5]. The company’s Intelligent Cloud segment remained a powerhouse, with revenue crossing the $50 billion threshold for the first time in a single quarter [2][7]. However, these solid fundamentals were insufficient to placate investors, who turned their focus intensely toward the company’s aggressive spending habits. The disparity between the earnings beat and the stock’s double-digit decline underscores a shifting market sentiment where efficiency and immediate returns on Artificial Intelligence (AI) investments are becoming paramount [6][7].

Surging Capital Expenditures Spark Concern

The catalyst for the sell-off was the revelation of Microsoft’s massive capital expenditure (capex), which totaled $37.5 billion for the October-December quarter alone—a staggering 66% increase year-over-year [7]. This brings the company’s total infrastructure investment for the first two quarters of fiscal 2026 to $72.4 billion [7]. While Microsoft CEO Satya Nadella emphasized that the company is merely in the “beginning phases of AI diffusion,” market analysts expressed concern that the return on this colossal investment might be slower to materialize than anticipated [2][6]. David Morrison, a senior market analyst at Trade Nation, noted on Thursday morning that the earnings report “reinforced fears that a return on AI investment may be slow in coming” [6].

Ripple Effects Across the Tech Sector

Microsoft’s stumble triggered a broader contagion across the technology sector, pushing software stocks into a bear market on Thursday [6]. The iShares Expanded Tech-Software Sector ETF was reported down 21% from its October 2025 highs [6]. Notable industry peers also suffered significant losses during the session; ServiceNow plunged 12%, Salesforce dropped 8%, and Oracle declined by 5% [6]. Hardware and chipmakers were not immune to the negative sentiment, with AMD falling 3% and Nvidia slipping 2%, as investors reassessed the sustainability of AI-driven demand across the entire value chain [6].

Sources

Market Volatility Tech Selloff