Key Takeaways
- Microsoft (MSFT) has plummeted 32% from its October 2025 peak of $542.07, marking a 20% year-to-date loss — the steepest among Magnificent Seven stocks.
- UBS lowered its price target from $600 to $510 due to sluggish Copilot uptake, though the firm maintained its Buy recommendation.
- Copilot has secured 15 million seats — falling short of market expectations — while commercial M365 revenue growth remains flat.
- The company still delivered 17% year-over-year revenue expansion in its latest quarter, and shares trade near their lowest price-to-earnings ratio in ten years.
- CNBC’s Jim Cramer continues to champion Microsoft as a top-tier AI investment, despite raising concerns about its OpenAI partnership dynamics.
Microsoft’s 2026 has started on a challenging note. Shares settled at $371.04 on Wednesday — the lowest closing price since April 2025 — positioning the stock for its steepest quarterly drop since the fourth quarter of 2008.
The tech giant is experiencing its most punishing six-month stretch since 2009. From its October 2025 record of $542.07, Microsoft has erased approximately $1.28 trillion in shareholder wealth.
The company now occupies the fourth position among America’s most valuable corporations by market capitalization, trailing Nvidia, Apple, and Alphabet.
Jim Cramer has maintained a positive stance on Microsoft for years. Last September, he identified it as one of eight “elite” equities and suggested it would attract capital as investors shift from speculative AI stocks to established performers.
However, Cramer has also highlighted tensions in the Microsoft-OpenAI relationship. Media reports indicated OpenAI explored potential collaboration with Amazon to diversify beyond Microsoft. This month, Reuters disclosed that Microsoft is contemplating legal measures against OpenAI and Amazon regarding a $50 billion arrangement that may breach its exclusive cloud agreement.
Microsoft currently controls approximately 27% of OpenAI’s equity.
Copilot Performance Misses Targets
The primary factor pressuring shares is Copilot. Microsoft’s artificial intelligence tool, integrated across its Microsoft 365 ecosystem, was positioned as the catalyst to support the stock’s elevated multiples.
Yet adoption sits at just 15 million seats. Market participants globally believe this figure should be substantially higher. UBS observed that commercial M365 revenue expansion “should be accelerating and yet it isn’t.”
UBS reduced its 12-month valuation target from $600 to $510 this Tuesday. While preserving a Buy stance, the investment bank stated the Copilot story “must strengthen for any meaningful stock revaluation.”
Microsoft offered some pushback. Company representatives informed UBS that Copilot underwent significant reconstruction throughout the previous year incorporating advancements from both OpenAI and Anthropic, with Q2 engagement metrics described as “very strong.” Nevertheless, investors remain fixated on monetization rather than engagement.
On the competitive landscape, Microsoft is jointly developing Copilot Coworker with Anthropic, which will be integrated into Copilot without additional customer charges. UBS characterized this as “an optimal strategic maneuver.”
Azure Momentum Continues With Caveats
Apart from Copilot challenges, Azure represents a positive element — though not without concerns. Cloud division revenue climbed 39% year-over-year in the latest reporting period.
Microsoft conveyed to UBS that it maintains a “highly optimistic” outlook on Azure demand. Yet the corporation provided no forward guidance for Azure expansion beyond the current March quarter.
Analysts noted that GPU capacity reallocation — which already impacted shares following Q2 results — may continue constraining Azure’s trajectory in upcoming quarters.
The decline has dramatically compressed Microsoft’s valuation metrics. Shares now trade near their most attractive price-to-earnings level in a decade, after hovering around 35 times earnings throughout recent years.
Revenue expanded 17% year-over-year in the last quarter. Analysts project 16% growth for the upcoming quarter with comparable expectations for the full fiscal year.
Shares closed Wednesday at $371.04, representing a 32% decline from the October 2025 high of $542.07.
