AI burns money and burns "trust collapse"! Microsoft Corporation (MSFT.US) suffers its worst month in 26 years, with a market value of 570 billion disappearing.

Software giant Microsoft Corporation (MSFT.US) is currently facing its most severe market test since the dot-com bubble era. Under multiple pressures, the company's stock experienced a historic sell-off in June, marking its worst monthly performance in nearly 26 years, as the market harbors deep doubts about its heavy bet on artificial intelligence (AI) strategy. As of last Friday's close, Microsoft Corporation's stock price had already dropped by 17% in June, heading towards its worst monthly performance since December 2000. This sell-off has wiped out over $570 billion of its market value and pushed its stock price to its lowest closing level since 2023, despite some rebound on Friday. Data as of last Thursday showed that Microsoft Corporation's stock price had once dropped by 21.6% within the month, ranking 485th out of the 503 components of the S&P 500 index, a disastrous performance. Looking at the year-to-date perspective, the situation is even more bleak. Data as of last Thursday showed that Microsoft Corporation's stock price had fallen by over 24% in the first half of 2026, heading towards its worst first half performance since 2000 (when it fell nearly 32%). Microsoft Corporation is not only the weakest performer in the "Big Seven" stocks in June, but also reflects a sector-wide rotation of funds and profit-taking in the overvalued tech sector. The Roundhill Magnificent Seven ETF (MAGS.US) tracking the "Big Seven" fell into correction territory (down at least 10% from recent highs) on Tuesday and closed down nearly 13% for the month as of last Friday's close. Double whammy: AI spending and disruptive risks The core drive behind this fall is growing concerns among investors about the return prospects of Microsoft Corporation's massive investments in the field of AI. Jack Ablin, Chief Investment Officer at Cresset Wealth Advisors, pointed out that Microsoft Corporation is facing a dual whammy: "concerns about AI spending, as well as fears about the disruptive effects of AI." He described the current market sentiment as an "investors selling first and asking questions later" situation. A surge in capital spending pressures profit prospects What is unsettling the market the most is Microsoft Corporation's unprecedented capital expenditure plans. In its third-quarter earnings report released in late April, Microsoft Corporation forecasted a staggering $190 billion in capital spending for the fiscal year 2026 (ending in December), a surge of over 60% compared to the previous fiscal year, far exceeding Wall Street's expectations. At the same time, its free cash flow fell by about 10%. Looking back over the past few years, Microsoft Corporation's capital expenditure has soared from $24 billion in fiscal year 2021 to $88 billion in fiscal year 2025, and is expected to further expand in 2026. These funds are mainly used to build AI infrastructure, such as energy-intensive AI processors and data centers. Analyst Ishan Majumdar from Baptista Research commented that the market is now pricing Microsoft Corporation's stock from a cash flow compound growth machine to a story of heavy asset infrastructure. He pointed out that many investors who originally saw Microsoft Corporation as a target for free cash flow investment are now being asked to foot the bill for a capital-intensive cycle they had not anticipated. This aggressive spending has already started to threaten the company's profitability. Stifel analyst Brad Reback, in a report on June 25, downgraded Microsoft Corporation's stock target price from $415 to $400, citing "accelerating capital spending squeezing the gross margin of the Azure cloud computing business." He believes that the current market expectations for Microsoft Corporation's profitability are "too high." Although the Azure cloud computing business showed growth momentum in the latest earnings report, this positive signal was completely overshadowed by the high capital spending guidance. After the release of the quarterly report, Microsoft Corporation's stock price fell by nearly 4%. The four companies, Alphabet Inc. Class C (GOOGL.US), Amazon.com, Inc. (AMZN.US), Meta (META.US), and Microsoft Corporation, are expected to spend a total of $700 billion on their AI businesses this year, and this industry-wide "arms race" is exhausting investors. As these mega-cap companies increasingly rely on issuing bonds rather than just using their own cash to support their construction, market concerns are further heightened. Disruptive concerns for traditional software businesses In addition to spending issues, investors are also concerned about whether AI technology itself will erode Microsoft Corporation's traditional core businesses. Ablin raised a key question: "Will Word or Excel become obsolete because of AI, that remains to be seen." This reflects a widespread fear in the market: AI assistants may eventually disrupt the way people use software, shaking the foundation on which Microsoft Corporation relies for its survival. The "forced integration" of AI features by users has also generated resistance. Microsoft Corporation's Copilot assistant was considered too intrusive by some users, leading the company to soften its stance recently, even ceasing to provide free built-in Copilot access in some Office applications and adjusting the branding strategy for some AI tools. The bull and bear game in the valuation gap After this decline, Microsoft Corporation's valuation has dropped to its lowest level in a decade. Based on expected earnings for the next 12 months, its P/E ratio is around 19 times, not only much lower than its average of 27 times over the past decade, but also unusually below the S&P 500 index's 20 times. Majumdar emphasized that the industry median is 32 times, and "this valuation gap is hard to ignore." This "bargain" valuation has attracted the attention of some value investors. Michael Burry, known for shorting the U.S. real estate market before the 2008 financial crisis, recently revealed that he had bought bullish options on Microsoft Corporation with a strike price around $700, expiring in 2028. This news drove Microsoft Corporation's stock price up by 5.7% to $372.97 on last Friday, marking its best single-day performance since May 2025. The bullish arguments are not only based on undervaluation, but also on revenue growth as another support point. Analysts generally expect Microsoft Corporation's revenue to grow by 17% in the current fiscal year ending on June 30, the fastest pace since 2022, and further accelerate to 18% and 20% in the fiscal years 2028 and 2029. Benchmark analyst Yi Fu Lee also believes that Microsoft Corporation still "maintains strong free cash flow growth" and emphasizes that the company is "building for long-term growth" rather than reacting to short-term uncertainties in demand. He sees the current downturn as a buying opportunity and calls Microsoft Corporation "one of the highest-quality ways to gain exposure to AI." Microsoft Corporation has not retreated from its AI strategy and is even trying to carve out an independent path. The company released its self-developed base model in early June, aiming to distance itself from its partner OpenAI. Although they still maintain a cooperative relationship, OpenAI was granted in April the ability to offer products to customers through any cloud service provider, not just limited to Azure. The position of Keith Fitz-Gerald, head of the Fitz-Gerald Group, represents the conflicting feelings of many observers at the moment. He believes that Microsoft Corporation's current valuation represents "an almost epic buying opportunity" and believes that when AI investments begin to turn into better WINOX, the stock price "will skyrocket like a rocket." However, he also admits that misunderstandings surrounding AI will continue for some time, and the current sell-off is "a true test of faith." He says he is "holding on tight," maintaining a smaller position, hoping to have the courage to buy more if the stock price continues to fall. Microsoft Corporation is at the center of a storm woven by its massive investments and long-standing market doubts. Looking from a historical perspective, whether in terms of monthly, yearly, or in terms of its performance among the "Big Seven" camp, Microsoft Corporation is currently experiencing a rare moment of darkness. Majumdar believes that the current sell-off is "more like a repricing of the return path, rather than a denial of the business itself." But until the massive capital spending translates into significant profits, this tech giant may find it difficult to quickly dispel the historic pain it is currently enduring in the capital market.