US technology stocks experienced a significant sell-off on Thursday, driven by a sharp decline in Microsoft shares that intensified investor doubts about the timeline for returns on massive artificial intelligence investments. The tech-heavy Nasdaq Composite index closed down 0.72 per cent at 23,685, weighed down by substantial losses across major software companies. Meanwhile, the broader S&P 500 slipped 0.13 per cent to 6,969, while the Dow Jones Industrial Average managed a modest 0.11 per cent gain, adding 56 points.
Microsoft's Plunge Sparks Market Anxiety
Microsoft shares closed nearly 10 per cent lower at $443.50, having fallen as much as 12 per cent during the trading session, marking the stock's worst single-day performance since March 2020. This dramatic sell-off occurred despite the software giant surpassing Wall Street expectations in its quarterly results, released after Wednesday's market close. The company reported quarterly revenue of $81.27 billion, exceeding forecasts of approximately $80.3 billion, while earnings reached $4.14 per share compared to anticipated $3.92.
The scale of demand for AI services was evident in Microsoft's total cloud revenue, which surpassed $50 billion for the quarter. However, market attention focused instead on slowing momentum within Microsoft's Azure cloud platform. Revenue from the 'Intelligent Cloud' division, which includes Azure, increased 39 per cent year-on-year, slightly below the pace some investors had anticipated given the enormous capital being invested in data centres and semiconductor infrastructure.
Leadership Reassurance Fails to Calm Investors
Chief executive Satya Nadella attempted to reassure markets, stating: "We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises. We are pushing the frontier across our entire AI stack." However, this message appeared insufficient to alleviate investor concerns.
Jefferies analyst Brent Thill noted that the market reaction reflected "concerns about Azure growth coming in close to expectations and the concentration of Microsoft's backlog." He added that approximately 45 per cent of Microsoft's $625 billion in remaining performance obligations are linked to Sam Altman's OpenAI, highlighting the company's substantial exposure to the AI research organisation.
Software Sector Feels the Strain
Microsoft's dramatic decline dragged much of the software sector down with it. Industry behemoth Salesforce fell more than six per cent, while Datadog slid almost nine per cent. Both Adobe and Oracle also ended the trading day lower. Analysts warned that rising AI infrastructure costs risk squeezing profit margins across the sector before corresponding revenue increases materialise.
Divergence Within Big Tech
Not all major technology companies moved in unison during Thursday's trading session. Meta Platforms surged more than 10 per cent to $738.31 following the social media giant's announcement that it had raised its 2026 capital expenditure guidance to between $115 billion and $135 billion, alongside posting strong earnings that exceeded expectations.
Jefferies analysts noted that Meta had gone "full throttle" on AI investments, but investors appeared reassured by the resilience of its core advertising business. Elsewhere in the technology sector, Tesla fell 3.5 per cent as the electric vehicle manufacturer continued to grapple with declining vehicle sales and an expensive strategic pivot toward robotics and autonomous technology.
Chief executive Elon Musk revealed this week that the company would cease production of its Model S and X vehicles, repurposing a California factory to manufacture humanoid robots while committing approximately $20 billion in capital spending for 2026. Apple provided one of the few bright spots, rising modestly ahead of its earnings release, which later revealed record iPhone sales despite warnings about future margin pressure.
Broader Market Implications
Beyond equity markets, risk appetite weakened across financial markets. Bitcoin declined by over per cent to approximately $84,100, while US stock futures pointed lower on Friday amid rising Treasury yields and uncertainty surrounding Donald Trump's expected selection for the next Federal Reserve chair. The technology sector's volatility underscores growing investor apprehension about whether current AI spending levels will generate sufficient returns within expected timeframes.
