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.
- Investment bank UBS lowered its price target from $600 to $510 due to underwhelming Copilot adoption rates, though maintained its Buy recommendation.
- Copilot subscriptions reached 15 million seats — falling short of market expectations — while commercial M365 revenue growth remains stagnant.
- The company still delivered 17% revenue growth year-over-year 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, despite raising questions about its partnership dynamics with OpenAI.
Microsoft’s 2026 has begun on shaky ground. Shares settled at $371.04 on Wednesday — the lowest closing price since April 2025 — putting the stock on track for its steepest quarterly downturn since the final quarter of 2008.
The tech behemoth is experiencing its most challenging six-month stretch since 2009. After reaching a record high of $542.07 in October 2025, Microsoft has watched nearly $1.28 trillion evaporate from its market capitalization.
The company now sits in fourth position among America’s most valuable corporations, trailing Nvidia, Apple, and Alphabet.
Jim Cramer has maintained his position in Microsoft for an extended period. Last September, he categorized it among his “elite eight” holdings and predicted it would attract capital as traders moved away from riskier AI speculation toward established quality companies.
However, Cramer has also highlighted tensions brewing between Microsoft and OpenAI. News surfaced that OpenAI had been investigating potential collaboration with Amazon to diversify away from Microsoft’s infrastructure. More recently, Reuters disclosed that Microsoft was weighing legal action against both OpenAI and Amazon regarding a $50 billion arrangement that purportedly breaches its exclusive cloud computing agreement.
Microsoft currently maintains approximately 27% ownership in OpenAI.
Underwhelming Copilot Performance
The primary factor dragging down shares is Copilot. Microsoft’s artificial intelligence assistant, integrated throughout its Microsoft 365 ecosystem, was supposed to drive the growth trajectory that would validate the stock’s elevated valuation.
Yet, subscription numbers have only reached 15 million seats. Investors across global markets believe this figure should be significantly higher. UBS observed that commercial M365 revenue growth “should be accelerating upward but remains flat.”
UBS reduced its 12-month target from $600 to $510 this Tuesday. While maintaining their Buy stance, the firm stated that the Copilot story “must demonstrate improvement before the stock can achieve meaningful revaluation.”
Microsoft offered some pushback. Company representatives informed UBS that Copilot underwent a complete reconstruction over the previous year incorporating enhancements from both OpenAI and Anthropic, and that second-quarter usage metrics were “exceptionally strong.” Markets, however, remain fixated on revenue generation rather than engagement statistics.
On the competitive landscape, Microsoft is jointly developing Copilot Coworker with Anthropic, which will be integrated into Copilot without additional customer charges. UBS described this as “the optimal strategic maneuver.”
Azure Shows Resilience Amid Uncertainty
Outside of Copilot, Azure represents a positive development — though not without complications. Cloud division revenue jumped 39% year-over-year in the latest reporting period.
Microsoft conveyed to UBS that it maintains a “highly optimistic” outlook on Azure demand. However, the company declined to provide forward guidance for Azure expansion beyond the current March quarter.
Analysts noted that GPU capacity constraints — which already impacted the stock following second-quarter results — may continue hampering Azure’s growth trajectory in upcoming periods.
The sharp decline has dramatically recalibrated Microsoft’s valuation metrics. Shares now trade near their most attractive price-to-earnings ratio in a decade, after maintaining levels around 35 times earnings throughout recent years.
Revenue expanded 17% year-over-year in the latest quarter. Street consensus anticipates 16% growth for the next quarter with comparable performance expected for the full fiscal year.
The stock closed Wednesday at $371.04, representing a 32% decline from its October 2025 zenith of $542.07.
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