---
title: "AI burns money leading to a \"trust collapse\"! Microsoft faces its worst month in 26 years with a market value of $570 billion evaporating"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/291152094.md"
description: "Microsoft (MSFT) saw its stock price plummet 17% in June, with a market value evaporating by over $57 billion, marking its worst monthly performance in 26 years. The market has raised concerns about the return prospects of its massive investments in AI and the associated disruptive risks, leading to capital rotation and profit-taking"
datetime: "2026-06-29T13:20:03.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/291152094.md)
  - [en](https://longbridge.com/en/news/291152094.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/291152094.md)
---

# AI burns money leading to a "trust collapse"! Microsoft faces its worst month in 26 years with a market value of $570 billion evaporating

According to Zhitong Finance APP, software giant Microsoft (MSFT.US) is undergoing the most severe market test since the dot-com bubble era. Under multiple pressures, the company's stock price experienced a historic sell-off in June, marking its worst monthly performance in nearly 26 years, raising profound doubts in the market about its heavy bet on artificial intelligence (AI) strategies.

As of last Friday's close, Microsoft's stock price had fallen 17% in June, heading towards its worst monthly performance since December 2000. This wave of sell-off has wiped out over $570 billion in market value and pushed the stock price to its lowest closing price of 2023 last Thursday, although there was a rebound on Friday. Data up to last Thursday showed that Microsoft's stock price had at one point dropped 21.6% in the month, ranking 485th among the 503 constituents of the S&P 500 index, which is considered disastrous.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260629/1782738653311647.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

From the perspective of year-to-date, the situation is even more severe. According to data up to last Thursday, Microsoft's stock price has fallen over 24% in the first half of 2026, heading towards its worst first-half performance since 2000 (when it fell nearly 32%). Microsoft is not only the weakest stock among the "seven giants" of U.S. stocks in June but also reflects that the entire overvalued tech sector is undergoing a round of capital rotation and profit-taking. The Roundhill Magnificent Seven ETF (MAGS.US), which tracks the "seven giants," fell into correction territory (defined as a drop of at least 10% from recent highs) last Tuesday, and as of last Friday's close, the index had dropped nearly 13% in the month.

## Double Whammy: AI Spending and Disruptive Risks

The core driving force behind this crash is investors' growing concerns about the return prospects of Microsoft's massive investments in AI. Jack Ablin, Chief Investment Strategist at Cresset Wealth Advisors, pointed out that Microsoft is being hit from two sides: "On one hand, there are concerns about AI spending, and on the other hand, worries about the disruptive impact of AI." He described the current market sentiment as "investors selling first and asking questions later."

**Surge in Capital Expenditure, Profit Outlook Under Pressure**

What makes the market uneasy is Microsoft's unprecedented capital expenditure plan. In the third-quarter financial report released in late April, Microsoft predicted that capital expenditures for fiscal year 2026 (ending in December) would reach an astonishing $190 billion, an increase of over 60% from the previous fiscal year, far exceeding Wall Street expectations. At the same time, its free cash flow has decreased by about 10%.

Looking back over the past few years, Microsoft's capital expenditures have skyrocketed from $24 billion in fiscal year 2021 to $88 billion in fiscal year 2025, with further expansion expected in 2026. These funds are primarily 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 re-pricing Microsoft's stock from a cash flow compound growth machine to a heavy asset infrastructure story. He pointed out that many investors who originally viewed Microsoft as a free cash flow investment target are "now being asked to pay for a capital-intensive cycle they did not expect to participate in."

This aggressive spending has begun to threaten the company's profitability. Stifel analyst Brad Reback lowered Microsoft's stock price target from $415 to $400 in a report on June 25, citing "accelerated capital expenditures are compressing the gross margins of the Azure cloud computing business." He believes the current market's earnings expectations for Microsoft are "too high."

Although the Azure cloud computing business showed growth momentum in the latest financial report, this positive signal was completely overshadowed by high capital expenditure guidance. Following the earnings report, Microsoft's stock price fell nearly 4%. The total spending on AI by Google (GOOGL.US), Amazon (AMZN.US), Meta (META.US), and Microsoft is expected to reach $700 billion this year, and this industry-wide "arms race" is exhausting investors. As these mega-corporations increasingly rely on issuing bonds rather than just their own cash to support construction, market concerns have intensified.

**Disruptive Concerns for Traditional Software Business**

In addition to spending issues, investors are also worried about whether AI technology itself will erode Microsoft's traditional core business. Abelin raised a key question: "Will Word or Excel become obsolete because of AI? That remains to be seen." This represents a common fear in the market: AI assistants may ultimately disrupt the way people use software, shaking the foundation on which Microsoft relies for survival.

Users have also shown resistance to the "forced integration" of AI features. Microsoft's Copilot assistant has been deemed too mandatory by some users, forcing the company to soften its stance recently, even halting the provision of free built-in Copilot access in some Office applications and adjusting the branding strategy of certain AI tools.

## Bull-Bear Battle in a Valuation Lowland

After this round of declines, Microsoft's valuation has dropped to its lowest level in a decade. Based on expected profits over the next 12 months, its price-to-earnings ratio is about 19 times, which is not only far below its average of 27 times over the past decade but also rarely lower than the S&P 500 index's 20 times. Majumdar emphasized that, in contrast, the industry median is 32 times, "this valuation gap is hard to ignore."

This "bargain price" valuation has attracted the attention of some value investors. Michael Burry, known for shorting the U.S. housing market before the 2008 financial crisis, recently revealed that he has bought call options on Microsoft with a strike price of around $700, expiring in 2028. This news propelled Microsoft's stock price to rebound 5.7% to $372.97 last Friday, marking its best single-day performance since May 2025 The arguments of the bulls are not solely based on undervaluation; revenue growth is another supporting point. Analysts generally expect Microsoft's revenue to grow by 17% in the current fiscal year ending June 30, which would be the fastest growth rate since 2022, and they anticipate further acceleration to 18% and 20% in the fiscal years 2028 and 2029.

Benchmark analyst Yi Fu Lee also believes that Microsoft continues to "maintain strong positive free cash flow growth" and emphasizes that the company is "building for long-term growth" rather than reacting to short-term demand uncertainties. He views the current downturn as a buying opportunity, stating that Microsoft remains "one of the highest quality ways to gain exposure to AI."

Microsoft has not retreated in its AI strategy and is even attempting to carve out an independent path. The company released its self-developed foundational model in early June, aiming to distance itself from its partner OpenAI. Although the two parties still maintain a cooperative relationship, OpenAI was granted permission in April to offer products to customers through any cloud service provider, no longer limited to Azure.

Keith Fitz-Gerald, head of Fitz-Gerald Group, represents the contradictory mindset of many observers at this time. He believes that Microsoft's current valuation represents "an almost epic buying opportunity" and is confident that when AI investments begin to translate into better profits, the stock price "will soar like a rocket." However, he also acknowledges that misunderstandings surrounding AI will persist for some time, and the current sell-off is "a true test of faith." He stated that he is "gritting his teeth to hold on" and has maintained a smaller position, hoping to have the courage to buy if the stock price continues to decline.

Microsoft is at the center of a storm woven together by its massive investments and long-standing market uncertainties. From a historical perspective, whether viewed on a monthly or yearly basis, or in terms of performance among the "Seven Giants," Microsoft is experiencing a rare dark moment. Majumdar believes that the current sell-off "is more like a repricing of the return path rather than a denial of the business itself." However, until the massive capital expenditures are effectively translated into substantial profits, this historic pain endured by the tech giant in the capital markets is unlikely to dissipate quickly

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