Microsoft is facing a proposed class action lawsuit from shareholders who accuse the tech giant of inflating its stock price and defrauding investors by hiding a slowdown in its Azure cloud business and masking billions in AI spending.
The lawsuit, led by a Michigan pension fund, was filed on Friday in a Seattle federal court. It follows a sharp 10% plunge in Microsoft’s stock on January 29, triggered by a quarterly earnings report released the previous evening. The massive sell-off wiped out roughly $357 billion in market value, marking Microsoft's largest single-day market drop in nearly six years, News.Az reports, citing Reuters.
Microsoft has not yet responded to requests for comment regarding the litigation.
According to the complaint, Microsoft failed to adequately disclose that it was facing severe capacity constraints, which forced the company to divert significant resources away from its core cloud business and toward AI research and development, including its Copilot chatbot.
The financial strain became apparent during Microsoft’s fiscal second-quarter earnings report. While Azure and related cloud services posted a seemingly robust 39% revenue growth, it marked a step down from the 40% growth seen in the previous quarter. Furthermore, Microsoft forecast that cloud growth would cool even further, predicting a 37% to 38% increase for the first three months of 2026.
At the same time, Microsoft’s capital expenditures skyrocketed to $37.5 billion for the quarter—a massive 66% jump from the previous year that easily surpassed Wall Street’s expectations of $34.3 billion. The lawsuit claims executives masked the true scale of these infrastructure costs and the resulting impact on its premier cloud business.
The legal action is being spearheaded by the City of St. Clair Shores Police and Fire Retirement System in Michigan and names several top executives as defendants, including Chief Executive Satya Nadella and Chief Financial Officer Amy Hood. The proposed class period covers investors who purchased Microsoft shares between May 1, 2025, and January 28, 2026.
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