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Microsoft (MSFT) Stock: Should You Buy After 22% Plunge?

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MSFT Stock Card

TLDR

  • Microsoft stock plunged 22% from all-time highs after January 28 earnings report revealed AI growth challenges
  • Copilot adoption reached only 15 million licenses out of 400 million available Microsoft 365 seats
  • Azure cloud revenue growth slowed to 39% from 40% previous quarter despite beating analyst expectations
  • OpenAI represents $281 billion or 45% of Microsoft’s $625 billion order backlog creating concentration risk
  • Stock trades at P/E ratio of 26.5, cheapest valuation in three years compared to Nasdaq-100’s 32.8 multiple

Microsoft stock has tumbled 22% from record highs following its fiscal Q2 2026 earnings release. Shares fell over 10% on January 28 alone as investors questioned the company’s AI momentum.


MSFT Stock Card
Microsoft Corporation, MSFT

The stock closed at $393.58 on February 5, marking a sharp retreat from its $555 peak. Despite posting 16.7% revenue growth over the trailing twelve months, concerns about AI execution have spooked Wall Street.

Microsoft’s Copilot virtual assistant has struggled to penetrate enterprise markets. The company sold just 15 million Copilot licenses for Microsoft 365 out of 400 million total business licenses available.

That 3.7% adoption rate doubled from a year earlier but disappointed investors. Copilot integrates AI capabilities into Word, Excel, Outlook and other productivity applications.

The company found more success with developers. Paid Copilot subscriptions for software developers surged 77% from the prior quarter.

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Healthcare showed promise too. Dragon Copilot now assists over 100,000 medical professionals and processed 21 million patient encounters in Q2, tripling year-over-year.

Azure Growth Rate Decelerates

Azure cloud platform revenue increased 39% year-over-year in the second quarter. The result beat Wall Street’s 37.1% forecast but slowed from 40% growth three months earlier.

Investors interpreted the deceleration as a warning sign. Azure provides critical infrastructure and AI development tools for businesses building applications.

Microsoft pointed to data center capacity shortages as a limiting factor. The company’s order backlog from customers waiting for infrastructure ballooned 110% year-over-year to $625 billion.

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OpenAI Concentration Creates Vulnerability

A closer look at the backlog revealed troubling details. OpenAI alone accounts for $281 billion or 45% of total future commitments.

The AI startup lacks sufficient cash reserves to fund those orders immediately. OpenAI must depend on investor capital and revenue expansion to meet obligations.

Microsoft’s CFO disclosed this concentration during the earnings call. Shareholder lawsuits emerged in February 2026 alleging the company misled investors about OpenAI dependence.

Capital spending reached $37.5 billion in Q2 2026 as Microsoft invests heavily in AI infrastructure. Company-wide gross margins contracted despite revenue gains, pressuring profitability.

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The More Personal Computing division declined 3% year-over-year. Gaming revenue fell 9% with Xbox content and services dropping 5%.

Microsoft currently trades at a price-to-earnings ratio of 26.5 based on trailing earnings of $15.98 per share. That represents the lowest valuation in three years.

The Nasdaq-100 trades at a 32.8 P/E multiple, making Microsoft cheaper than most tech peers. Analysts project fiscal 2027 earnings of $19.06 per share, implying a forward P/E of 22.4.

The company maintains robust cash generation with a 25.3% free cash flow margin and 46.7% operating margin. Microsoft’s market capitalization stands at $2.9 trillion as of February 5, 2026.

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Crypto World

Stablecoins Do Not Threaten Banking Just Yet: Analyst

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Stablecoins Do Not Threaten Banking Just Yet: Analyst

The impact of stablecoins on the banking sector appears “limited” at the current phase of the adoption cycle, but banks could face increasing competition and an erosion of market share as the stablecoin sector and tokenized real-world assets (RWAs) grow in market capitalization. 

“So far, the use of stablecoins remains limited, but their market capitalization exceeded $300 billion at the end of last year,” Abhi Srivastava, associate vice president of Moody’s Investors Service Digital Economy Group, told Cointelegraph.

The stablecoin market cap has surged past $300 billion. Source: RWA.xyz

The role of stablecoins in payments, cross-border commerce and onchain finance is “expanding,” despite their currently limited role, Srivastava said, adding that existing payment systems in the US are already “fast, low-cost and trusted.” He said:

“For the banking sector, at this stage, disruption risk appears limited. In the near term, US rules that prohibit stablecoins from paying yield mean they are unlikely to replace traditional deposits at scale domestically.”

However, over time, growing adoption of stablecoins and tokenized RWAs, traditional or physical financial assets represented on a blockchain by a token, could place “pressure” on the banking sector, leading to deposit outflows and reduced lending capacity, he said.

Stablecoin regulatory policy has become a hot-button issue among crypto industry executives and those in the banking sector, with fears that yield-bearing stablecoins could erode banking market share proving to be a stumbling block for the CLARITY crypto market structure bill in Congress. 

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Related: Stablecoins behave like FX markets as liquidity splits: Eco CEO

CLARITY Act stalled, as banks fight yield-bearing stablecoins

The Digital Asset Market Clarity Act of 2025, also known as the CLARITY Act, is a comprehensive crypto market regulatory framework that establishes an asset taxonomy, regulatory jurisdiction and oversight over the crypto markets.

The CLARITY crypto market structure bill. Source: US Congress

It is now stalled in Congress after a group of crypto industry companies, led by cryptocurrency exchange Coinbase, publicly stated opposition to earlier drafts of the bill.

A lack of legal protections for open-source software developers and a prohibition on yield-bearing stablecoins were among some of the most contentious issues cited by crypto industry opponents of the legislation.

Several attempts have been made by US lawmakers and the White House to negotiate a bill acceptable to both the crypto industry and the bank lobby.

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Earlier this month, North Carolina Senator Thom Tillis said he plans to release an updated draft bill proposal that would be acceptable to both sides; however, the bill has reportedly received pushback, according to Politico, and has yet to be publicly released. 

However, other crypto industry executives and market analysts have warned that if the CLARITY Act fails to pass, it could open the crypto industry up to future regulatory crackdowns by hostile lawmakers and officials.

Magazine: Stablecoins will see explosive growth in 2025 as world embraces asset class