Microsoft shares fell roughly 10% on Thursday after the company released an earnings report that failed to meet some investors’ expectations, marking its steepest single-day decline since March 2020. The sharp sell-off highlighted growing sensitivity around cloud growth and artificial intelligence spending among large technology firms.

As a result of the drop, Microsoft’s market capitalization shrank by about $357 billion in one session, bringing its total valuation down to approximately $3.22 trillion by the close of trading. The decline weighed on the broader software sector, with the iShares Expanded Tech-Software Sector exchange-traded fund sliding 5% for the day. The Nasdaq Composite Index, heavily influenced by major technology stocks, ended the session down 0.7%. Still, the weakness was not uniform across the sector.

Meta Platforms moved sharply in the opposite direction, with its shares jumping about 10% after the company reported stronger-than-expected results and issued upbeat revenue guidance earlier in the week. The contrast underscored how investors are increasingly selective, rewarding companies that deliver clear growth momentum while penalizing those that show even small signs of slowing.

For Microsoft, the disappointment centered on several key metrics. Growth in Azure and other cloud services, one of the most closely watched indicators of the company’s performance, reached 39% during the quarter. While still strong by most standards, the figure came in slightly below the 39.4% consensus estimate compiled by StreetAccount. In addition, Microsoft projected approximately $12.6 billion in fiscal third-quarter revenue from its More Personal Computing segment, which includes Windows. This outlook was notably below analysts’ expectations of around $13.7 billion. The implied operating margin for the upcoming quarter also failed to meet Wall Street forecasts.

Amy Hood, Microsoft’s chief financial officer, addressed concerns about cloud growth by pointing to capacity allocation decisions. She explained that Azure’s growth rate could have been higher if the company had devoted more newly available data center resources directly to external customers instead of prioritizing internal usage.

According to Hood, if all of the graphics processing units that came online during the first and second quarters had been assigned to Azure customers, the cloud growth metric would likely have exceeded 40%. Her comments suggested that infrastructure constraints, rather than demand, played a meaningful role in limiting reported growth.

Some analysts agreed that execution around infrastructure expansion remains a key issue. Ben Reitzes, an analyst at Melius Research who maintains a buy rating on Microsoft shares, said the company needs to accelerate its pace of data center construction. Speaking on CNBC, Reitzes argued that Azure’s growth challenges reflect the practical difficulty of building and deploying physical facilities quickly enough to keep up with demand.

In his view, Microsoft must move faster in bringing new buildings and capacity online if it wants to fully capitalize on the ongoing surge in cloud and artificial intelligence workloads. Without that acceleration, even strong demand may not translate into headline growth numbers that satisfy investors.

Other analysts raised more fundamental questions about Microsoft’s investment priorities, particularly around artificial intelligence. Analysts at UBS, led by Karl Keirstead, expressed skepticism about the company’s decision to secure large amounts of AI computing capacity for products such as Microsoft 365 Copilot. They noted that Copilot has not yet demonstrated the same level of market traction as OpenAI’s ChatGPT.

According to UBS, revenue growth in Microsoft 365 has not meaningfully accelerated as a result of Copilot, and multiple checks suggest that user adoption has not ramped up as strongly as some had hoped. The analysts also pointed out that the AI model market is becoming increasingly crowded and requires heavy capital investment. In their assessment, Microsoft still needs to clearly demonstrate that these investments will generate attractive returns over time.

Despite the criticism, not all reactions from Wall Street were negative. Analysts at Bernstein, led by Mark Moerdler, took a more supportive stance and reiterated a rating equivalent to a buy on Microsoft shares. They argued that management made a deliberate and thoughtful choice to prioritize long-term value creation over short-term stock performance.

From Bernstein’s perspective, Microsoft’s leadership chose to focus on strategic investments that will strengthen the company’s competitive position over time, even if those decisions temporarily weigh on margins or growth metrics. The analysts suggested that as capacity constraints ease in future quarters, the benefits of these investments could become more apparent.

Hood also sought to reassure investors on the cost front, indicating that capital expenditures are expected to decline slightly in the current quarter. This guidance may help alleviate some concerns about the pace of spending, particularly as investors closely monitor how much large technology companies are allocating toward cloud infrastructure and artificial intelligence.

Overall, Microsoft’s sharp stock decline reflects heightened expectations and limited tolerance for even modest shortfalls. While the company remains one of the most valuable and strategically important players in the technology sector, its latest results show that sustaining investor confidence in an environment dominated by AI optimism requires not just long-term vision, but also near-term execution that clearly aligns with market expectations.