Key Takeaways
- Microsoft (MSFT) shares have plummeted 32% from their October 2025 peak of $542.07, marking a 20% year-to-date decline — making it the weakest link in the Magnificent Seven.
- UBS analysts slashed their price target from $600 to $510 due to lackluster Copilot uptake, though they maintained their Buy recommendation.
- Copilot has secured 15 million seat subscriptions — a figure that falls short of market expectations — while commercial M365 revenue growth remains flat.
- The tech giant still delivered 17% year-over-year revenue expansion in its latest quarter, with shares trading at their lowest price-to-earnings multiple in ten years.
- Jim Cramer continues to endorse Microsoft as a premier AI investment, despite raising red flags about the company’s complicated partnership with OpenAI.
Microsoft’s 2026 has gotten off to a turbulent beginning. Shares settled at $371.04 this Wednesday — marking the lowest closing price since April 2025 — putting the stock on track for its steepest quarterly drop since the fourth 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 evaporate from its market capitalization.
The company now occupies the fourth position among America’s most valuable corporations by market cap, trailing behind Nvidia, Apple, and Alphabet.
Jim Cramer has maintained a long position on Microsoft. Last September, he categorized it among his “elite eight” equities and predicted it would attract investors rotating from speculative AI stocks into established blue-chip names.
However, Cramer has also highlighted tensions brewing between Microsoft and OpenAI. Media reports surfaced suggesting OpenAI had discussions with Amazon about diversifying its infrastructure partnerships away from Microsoft. In recent weeks, Reuters disclosed that Microsoft was weighing potential legal proceedings against both OpenAI and Amazon regarding a $50 billion arrangement that purportedly breaches its exclusive cloud computing agreement.
Microsoft currently maintains approximately a 27% ownership position in OpenAI.
Underwhelming Copilot Performance
The primary catalyst behind the stock’s weakness centers on Copilot. Microsoft’s artificial intelligence assistant, integrated throughout its Microsoft 365 ecosystem, was positioned as the catalyst that would validate the company’s elevated valuation metrics.
Yet, actual seat subscriptions total just 15 million. Investors across global markets anticipated significantly higher adoption figures. UBS analysts observed that commercial M365 revenue growth “should be accelerating upward, but instead remains stagnant.”
UBS reduced its 12-month valuation target from $600 down to $510 this Tuesday. While maintaining their Buy rating, the firm emphasized that the Copilot storyline “must demonstrate improvement before the stock can experience meaningful upward revaluation.”
Microsoft offered some pushback. Company representatives informed UBS that Copilot underwent a comprehensive rebuild throughout the previous year incorporating advancements from both OpenAI and Anthropic, and that second-quarter engagement metrics were “exceptionally strong.” However, Wall Street remains laser-focused on revenue generation — not merely usage statistics.
Regarding competitive positioning, Microsoft is jointly developing a solution named Copilot Coworker in partnership with Anthropic, which will be integrated into Copilot without additional customer charges. UBS described this as “the most strategic competitive maneuver available.”
Azure Maintains Momentum, Though Uncertainty Persists
Outside of Copilot, Azure represents a positive story — albeit with qualifications. Cloud services revenue surged 39% year-over-year during the most recent reporting period.
Microsoft conveyed to UBS that it maintains a “highly optimistic” outlook on Azure consumption. However, the company declined to provide forward guidance for Azure expansion beyond the ongoing March quarter.
Analysts noted that a reallocation of GPU infrastructure — which already pressured shares following second-quarter results — may continue dampening Azure’s growth trajectory in subsequent quarters.
The recent selloff has dramatically recalibrated Microsoft’s valuation metrics. Shares now trade near their most attractive price-to-earnings ratio in a decade, after trading around 35 times earnings throughout much of recent years.
Revenue expanded 17% year-over-year in the latest quarter. Analysts project 16% growth for the upcoming quarter with comparable expectations for the full fiscal year.
Shares closed Wednesday at $371.04, representing a 32% decline from the October 2025 pinnacle of $542.07.
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