Key facts
- Shareholders have sued Microsoft, alleging fraud and stock price inflation.
- The lawsuit cites undisclosed slowing growth in Azure cloud services.
- Shareholders also allege undisclosed billions spent on AI infrastructure.
- Microsoft's stock fell 10% on January 29, erasing $357 billion in market value.
- The company reported 39% revenue growth for Azure in Q2, down from 40% prior.
- Capital spending rose 66% year-over-year to $37.5 billion in Q2.
Microsoft is facing a proposed class action lawsuit from shareholders who allege the company defrauded them and inflated its stock price. The suit, filed in Seattle federal court by the City of St. Clair Shores Police and Fire Retirement System, claims Microsoft failed to disclose slowing growth in its Azure cloud business and the substantial costs associated with developing AI infrastructure.
The legal action follows a significant drop in Microsoft's stock price on January 29, when shares fell 10% after the company released its quarterly earnings report. This decline erased approximately $357 billion in market value, marking the stock's largest one-day fall in nearly six years.
According to the lawsuit, Microsoft reported 39% revenue growth for its Azure and other cloud services in the fiscal second quarter ending in December, which met analyst forecasts but represented a decrease from the 40% growth seen in the preceding quarter. For the first three months of 2026, the company projected growth between 37% and 38%.
Furthermore, Microsoft's capital spending in the second quarter reached $37.5 billion, a nearly 66% increase from the previous year and higher than the $34.3 billion anticipated by analysts. The lawsuit contends that Microsoft attributed the deceleration in Azure growth and increased spending to capacity constraints, as resources were redirected towards AI research and development, including its Copilot chatbot, which competes with offerings like Google's Gemini and OpenAI's ChatGPT. Microsoft is a significant investor in OpenAI.