- Microsoft shareholders accuse the company of concealing AI spending risks
- Azure growth slowed as AI infrastructure demands consumed computing resources
- Investors claim key business challenges were not fully disclosed
Microsoft is facing a class action lawsuit from shareholders who say the company failed to disclose the financial fallout of its AI spending properly.
The complaint argues investors were given only part of the picture, omitting key details about spending requirements, cloud infrastructure limits, and the broader challenges tied to Microsoft's AI push.
The proposed class period stretches from May 1, 2025, to January 28, 2026, a stretch during which Microsoft shares hit record highs before sliding back down.
The lawsuit, filed by The Rosen Law Firm on behalf of investors, claims Microsoft made misleading statements or simply left out information that mattered to its business operations.
According to the filing, company executives talked up Copilot's performance and the broader AI push while playing down concerns about cost and operational strain.
Court documents say Microsoft described Copilot as offering leading capabilities and strong adoption, language that helped keep investor confidence steady at the time.
The complaint goes further, alleging Microsoft never fully disclosed problems with user experience, interoperability, computational resources, internal organization, and data management.
Shareholders also argue that Microsoft's LLMs were falling behind certain competitors, requiring extra resources and development work just to keep pace.
According to the lawsuit, a meaningful part of computing capacity was pulled away from other revenue-generating services and redirected toward Copilot and AI research instead.
In fiscal year 2025, Azure revenue had grown 34% to more than $75 billion, and Microsoft kept telling investors that future growth would keep being driven by Azure.
Azure slowdown and rising expenditures draw investor scrutiny
Things came to a head after Microsoft's fiscal second-quarter 2026 earnings, covering the period through December 31.
The filing says Azure growth slowed unexpectedly and landed below what analysts had been expecting, raising fresh doubts about the company's infrastructure strategy.
During the earnings call, CFO Amy Hood reportedly attributed the slowdown largely to computational capacity constraints.
The complaint claims processor and graphics resources had been pulled toward Copilot and other AI models without much to show for it.
At the same time, Microsoft revealed capital expenditures of $37.5 billion for the quarter, pushing fiscal 2026 spending to $72.4 billion across just six months.
That figure already approached the $88.2 billion Microsoft spent across the entirety of fiscal 2025, according to the lawsuit.
Following those disclosures, shares fell more than $48 to $433.50, then kept sliding to $393 and eventually $380.
By the time the complaint was reported, Microsoft stock was trading around $399.76.
Microsoft executives, for their part, insist the company is doing everything it can to improve its AI tools and products.
Over the past year, Microsoft says it rolled out 625 new features, calling the product "way different than it was 90 days ago" as part of an effort to "improve the product rapidly."
Microsoft told Reuters the claims are "without merit" and said it "stands by the integrity of its public statements."
Follow TechRadar on Google News and add us as a preferred source to get our expert news, reviews, and opinion in your feeds.