US tech stocks slide as Microsoft rout sharpens AI spending doubts
US technology stocks sold off sharply on Thursday, as a bruising slump in Microsoft sparked investor unease over how long it will take for mass AI investments to pay off.
The tech-heavy Nasdaq Composite closed down 0.72 per cent at 23,685, weighed down by heavy losses across software giants.
The S&P 500 slipped 0.13 per cent to 6,969, while the Dow Jones Industrial Average eked out a 0.11 per cent gain, gaining 56 points.
Microsoft shares closed at almost 10 per cent lower at $443.50 (£322.18) having at one point fallen as much as 12 per cent, the stock’s worst day since March 2020.
This sell-off came despite the software giant beating Wall Street expectations in results released after Wednesday’s close.
The Big Tech favourite reported quarterly revenue of $81.27bn, ahead of forecasts of roughly $80.3bn, while earnings came in at $4.14 a share compared to expectations of $3.92.
The scale of demand for AI services was also seen by its total cloud revenue, which topped $50bn for the quarter.
But the market focused instead on slowing momentum in Microsoft’s Azure.
Revenue in ‘Intelligent Cloud’, which includes Azure, rose 39 per cent year on year, falling slightly below the pace some investors had been braced for given the scale of capital being poured into data centres and chips.
“We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises,” chief executive Satya Nadella said. “We are pushing the frontier across our entire AI stack.”
But it appears Nadella’s reassurance failed to land.
Jefferies analyst Brent Thill said the reaction reflected “concerns about Azure growth coming in close to expectations and the concentration of Microsoft’s backlog”.
He aded that roughly 45 per cent of its $625bn in remaining performance obligations are tied to Sam Altman’s OpenAI.
Software stocks feel the strain
Microsoft’s plunge dragged much of the software sector down with it.
Software behemoth Salesforce fell more than six per cent, Datadog slid almost nine per cent, and Adobe and Oracle both ended the day lower.
Analysts warned that rising AI infrastructure costs risk squeezing margins across the sector before revenues catch up.
But not all Big Tech moved in lockstep, with Meta surging more than 10 per cent to $738.31.
This came after the social media giant raised its 2026 capital expenditure guidance to between $115bn and $135bn and posting a strong earnings beat.
Analysts at Jefferies said Meta had gone “full throttle” on AI, but investors appeared reassured by the resilience of its advertising business.
Elsewhere, Tesla fell 3.5 per cent as the carmaker continued to grapple with falling vehicle sales and an expensive pivot towards robotics and autonomy.
Chief executive Elon Musk said this week the company would stop producing its Model S and X cars and repurpose a California factory to build humanoid robots, while committing around $20bn in capital spending in 2026.
Apple was one of the few bright spots, rising modestly ahead of results released after the close, which later showed record iPhone sales despite warnings of future margin pressure.
Beyond equities, risk appetite also weakened across markets.
Bitcoin slid by over per cent to around $84,100, while US stock futures pointed lower on Friday thanks to rising Treasury yields and uncertainty ove rDonald Trump’s expected pick for the next Federal Reserve chair.