Key Takeaways
- Microsoft (MSFT) has tumbled 32% from its October 2025 peak of $542.07, marking the steepest decline among Magnificent Seven stocks with a 20% year-to-date loss.
- UBS reduced its 12-month price objective from $600 to $510 due to sluggish Copilot uptake, though the firm maintained its Buy recommendation.
- Copilot has reached only 15 million paid seats — below market expectations — while commercial M365 revenue growth remains flat.
- The company delivered 17% year-over-year revenue expansion in its latest quarter, with shares trading near their lowest P/E multiple in ten years.
- CNBC’s Jim Cramer continues to view Microsoft as a top-tier AI investment, despite raising red flags about tensions with OpenAI.
Microsoft is experiencing one of its most challenging periods in recent memory. Shares settled at $371.04 on Wednesday — the lowest closing price since April 2025 — putting the stock on track for its steepest quarterly drop since the fourth quarter of 2008.
The software giant is enduring its worst six-month stretch since 2009. From its October 2025 record high of $542.07, Microsoft has erased approximately $1.28 trillion in market capitalization.
The Redmond-based company now holds the fourth position among America’s most valuable corporations by market cap, trailing Nvidia, Apple, and Alphabet.
Jim Cramer has maintained his position in Microsoft for an extended period. Last September, he designated it as part of his “elite eight” portfolio and suggested it would benefit as capital flows from speculative artificial intelligence investments into established names.
However, Cramer has also raised concerns about tensions between Microsoft and OpenAI. News surfaced that OpenAI had discussions with Amazon about diversifying away from its Microsoft dependency. This month, Reuters disclosed that Microsoft was weighing legal options against OpenAI and Amazon regarding a $50 billion arrangement that allegedly breaches its exclusive cloud agreement.
Microsoft maintains approximately a 27% ownership position in OpenAI.
Copilot Performance Disappoints Expectations
The primary factor pressuring the stock is Copilot. Microsoft’s artificial intelligence assistant, integrated within its Microsoft 365 ecosystem, was positioned as the catalyst to justify the company’s elevated valuation multiple.
Instead, paid subscriptions total just 15 million seats. Investors across global markets believe this figure should be substantially higher. UBS observed that commercial M365 revenue growth trajectory “should be bending higher and yet it’s not.”
UBS lowered its 12-month price objective from $600 to $510 this Tuesday. The investment bank preserved its Buy rating but noted the Copilot story “needs to improve in order for the stock to really re-rate higher.”
Microsoft offered some pushback. The corporation informed UBS that Copilot underwent a complete rebuild over the previous year incorporating enhancements from both OpenAI and Anthropic, and that Q2 engagement metrics were “very good.” Markets, however, remain fixated on monetization — not engagement.
On the competitive landscape, Microsoft is jointly developing a solution called Copilot Coworker in partnership with Anthropic, integrated into Copilot without additional charges for subscribers. UBS characterized it as “the best possible chess move.”
Azure Momentum Continues Despite Uncertainties
Beyond Copilot struggles, Azure represents a silver lining — albeit with qualifications. Cloud platform revenue climbed 39% year-over-year in the latest reporting period.
Microsoft communicated to UBS that it remains “very bullish” regarding Azure demand trajectory. However, the company provided no forward guidance on Azure expansion beyond the current March quarter.
Analysts highlighted that a GPU capacity reallocation — which already impacted shares following Q2 results — may continue to constrain Azure’s momentum in upcoming quarters.
The recent selloff has dramatically compressed Microsoft’s valuation metrics. Shares now trade near their most attractive price-to-earnings level in a decade, after hovering around 35 times earnings throughout recent years.
Revenue expanded 17% year-over-year in the most recent quarter. Wall Street projects 16% growth for the upcoming quarter with comparable rates anticipated for the full fiscal year.
The stock finished Wednesday’s session at $371.04, representing a 32% decline from its October 2025 all-time high of $542.07.
