Microsoft stock has fallen 36% from its October 2025 all-time high. And 2026’s first quarter could be the worst since 2008 at the peak of the financial crisis, when the software giant’s shares fell 27%, according to Bloomberg.

Microsoft’s share decline reflects the company’s inability to disprove two prevailing narratives:

Hyperscalers are doubling down on capital expenditures without generating faster growth.

AI agents from OpenAI and Anthropic may push down Microsoft’s software prices and margins.

Microsoft sees itself as uniquely qualified to earn a return in invested capital by providing software that lowers customers’ total cost of ownership.

“We have to manage a capital-intensive business, by using all of the levers that software gives us in managing TCO, managing utilization, optimizing the kernels by workload, ensuring that there’s a diverse class of customers,” Microsoft CEO Satya Nadella told Morgan Stanley Research U.S. Software Managing Director Keith Weiss. "Those are all the things that I think will generate great ROIC, and this is probably unique,” Nadella added.

While Wall Street sees as much as 57% upside, I am skeptical about Microsoft stock. Sadly, I see Nadella now doing some of what his predecessor, Steve Ballmer, did: trying to lock in customers to as many Microsoft services as possible.

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When it comes to AI chatbots, Nadella seems to be trying the same approach while failing to deliver end users a better product for their money than what rivals deliver.

Moreover, I question whether Microsoft will catch up to and ultimately overtake Anthropic’s Claude, which is setting the pace in making AI agents useful for end users.

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Microsoft — which invested $13 billion into OpenAI — has been spending $30 billion per quarter on CapEx to build out its AI infrastructure.

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