Microsoft is confronting a proposed class-action lawsuit filed by shareholders who claim the company inflated its stock price by concealing critical financial headwinds.
The suit, led by a Michigan pension fund in Seattle federal court, alleges Microsoft defrauded investors by failing to disclose a growth slowdown in its Azure cloud business and the necessity for massive capital expenditures on artificial intelligence infrastructure.
The legal action follows a sharp 10% stock decline on January 29, erasing roughly $357 billion in market value-the company's worst single-day drop in nearly six years. The stock plummeted after Microsoft’s quarterly earnings report revealed decelerating cloud revenue. Azure and other cloud services growth dipped to 39%, down from 40% in the prior period, with a further slowdown projected.
Simultaneously, the company reported a 66% surge in capital spending to $37.5 billion, far exceeding analyst estimates. The lawsuit contends that Microsoft attributed these financial shifts to capacity constraints as it prioritized resources for AI research, development, and its Copilot chatbot.
Defendants named in the suit include Chief Executive Satya Nadella and Chief Financial Officer Amy Hood. The proposed class period covers May 1, 2025, through January 28, 2026.