Microsoft has suffered one of its sharpest single-day market sell-offs in years, with shares plunging 10% and wiping nearly $360 billion off the company’s market capitalisation.

The stock sit down 10% at $433.50 at time of writing, leading losses on both the Dow Jones Industrial Average and the Nasdaq. The decline marked the second-largest one-day market value loss on record, surpassed only by Nvidia’s near-$600 billion rout during the Deepseek panic – a violent, but short-lived AI market sell-off.

The sell-off came despite Microsoft delivering better-than-expected quarterly revenue and earnings – though this was not enough to appease growing investor unease around the company’s cloud performance, rising AI-related spending and increasing reliance on a small number of major customers.

For the quarter ending 31 December, Microsoft reported revenue of $81.3 billion, up 17% year on year, while net income surged to $38.5 billion. Adjusted earnings per share came in at $4.14, ahead of forecasts of $3.97, while revenue also exceeded expectations of $80.27 billion.

However, investor focus quickly shifted to Azure, Microsoft’s flagship cloud platform and the lynchpin of its AI strategy. Azure and related cloud services grew 39%, broadly in line with guidance but slower than many on Wall Street had anticipated.

Concerns were compounded by signs of margin pressure. Microsoft’s implied fiscal third-quarter operating margin came in at 45.1%, below the 45.5% consensus, while gross margin slipped to a three-year low of 68%.

Capital expenditure also drew scrutiny. Microsoft’s spending ballooned to $37.5 billion, up 66% from the previous year, with the bulk directed towards AI infrastructure and new data centres – fuelling fears that escalating costs could weigh on near-term profitability.

During the company’s earnings call, chief financial officer Amy Hood said Microsoft’s cloud growth has been constrained by capacity limitations and stressed that the company is investing heavily to meet rising demand. However, the higher-than-expected pace of spending added to market concerns.

Microsoft also disclosed that nearly half of its backlog is attributable to OpenAI, its high-profile AI partner. The concentration has heightened investor sensitivity to risks associated with OpenAI’s financial position and long-term sustainability.

Central to the debate is whether Microsoft’s aggressive AI push represents a long-term opportunity or an overexposed bet. Addressing concerns over an “AI bubble”, chief executive Satya Nadella reiterated the company’s long-term focus.

“So many people talk about there may be an AI bubble,” he said, “but the democratisation and diffusion of technology are what really transform demand. The ultimate winners will be those who adopt and apply AI fastest -not just the creators of the technology.”

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Despite those reassurances, the market response was swift. Investors appeared unsettled by ballooning capital outlays, slowing cloud momentum and Microsoft’s growing dependence on OpenAI-related projects.

Beyond financial metrics, Microsoft has also faced criticism from parts of the online community over its increasingly aggressive integration of Copilot AI across its products. The company has embedded Copilot deeply into its software ecosystem, including dedicated Copilot buttons on some Windows 11 laptops, prompting questions about user choice and adoption figures.