Microsoft shares tumbled 12 percent in their steepest decline since 2020 after the tech giant revealed its artificial intelligence investments would accelerate rather than slow down, triggering fresh doubts about when massive AI spending will generate returns. The drop came despite the company beating revenue expectations and posting impressive cloud growth, underscoring growing investor anxiety about the hundreds of billions of dollars tech companies are pouring into AI infrastructure.
The selloff highlights a pivotal moment for the technology sector as Wall Street questions whether the AI boom justifies the unprecedented capital expenditures by major tech firms. Meanwhile, OpenAI announced it will retire its popular GPT-4o model next month, signaling rapid consolidation in the AI industry as companies streamline their offerings.
Microsoft Beats Forecasts But Warns on Spending
Microsoft delivered strong first-quarter results with revenue reaching 77.67 billion dollars and earnings of 3.72 dollars per share, handily beating Wall Street forecasts. The company’s Azure cloud unit generated 30.9 billion dollars, up 28 percent and crushing the consensus estimate of 30.25 billion dollars. Azure’s growth rate hit 40 percent, significantly outpacing analyst predictions of 38.2 percent and demonstrating Microsoft’s dominance over competitors like Amazon Web Services and Google Cloud.
Despite these impressive numbers, investors focused on a warning from Chief Financial Officer Amy Hood that sent shares tumbling in after-hours trading. Hood revealed that capital expenditure growth will actually accelerate this fiscal year, completely reversing her July guidance about spending slowdowns. Microsoft spent 34.9 billion dollars on infrastructure in the first quarter alone, well above the 30 billion dollars Hood projected just months earlier.
OpenAI Partnership Costs Mount
The company’s partnership with OpenAI carries substantial costs, with Microsoft spending 3.1 billion dollars on the collaboration this quarter, equivalent to 41 cents per share. Hood explained the company is racing to build out the infrastructure necessary to support AI demand, signaling no letup in spending despite investor concerns.
Chief Executive Officer Satya Nadella told analysts that companies are now paying for 15 million subscriptions to M365 Copilot, Microsoft’s main AI tool for office workers. Adoption is growing among the company’s enormous base of corporate users, though the pace has not been enough to satisfy Wall Street’s expectations for immediate returns on investment.
Broader Market Impact
The stock market was rattled by a slide in most megacaps, with technology giants dragging down the Nasdaq 100 by one percent. While gains in economically sensitive shares pulled the S&P 500 away from session lows, Microsoft’s 12 percent plunge dominated headlines. The decline represented the company’s worst single-day performance in more than four years.
Other tech giants are facing similar scrutiny over their AI spending plans. Meta Platforms will double capital spending to as much as 135 billion dollars this year in an all-in bet on AI. Tesla plans to spend 20 billion dollars this year on pursuits including AI, self-driving vehicles and robotics, almost double Wall Street estimates, and pour another two billion dollars into CEO Elon Musk’s xAI startup.
Wall Street is gearing up for a borrowing bonanza to bankroll AI projects that could push February corporate bond sales to a record. International Business Machines is selling dollar and euro bonds after reporting solid results.
AI Theme Under Pressure
The Magnificent Seven tech giants have led the stock market higher for much of the past three years, but that reversed at the end of 2025 as Wall Street grew skeptical of the hundreds of billions of dollars the companies are spending to develop AI and when the returns on those investments will materialize.
Fawad Razaqzada at Forex.com noted that the one-way bet on AI leadership is now starting to look overcrowded. There is now some fear creeping into investors’ minds that the AI theme may not be as immediately lucrative as hoped, he said.
However, Razaqzada added that all is not lost. The fact that the Nasdaq is easing back from elevated levels is a clear sign it is far too early to talk about the peak in tech.
Earnings Growth Slowing
The group of big techs is expected to post 20 percent profit growth for the fourth quarter, which would be the slowest pace since early 2023, according to data compiled by Bloomberg Intelligence. While earnings growth for the Magnificent Seven is expected to continue to outpace the remaining S&P 500 shares in each quarter in 2026, the gap is seen narrowing throughout the year.
Angelo Kourkafas at Edward Jones observed that a clear theme is emerging from tech earnings. Companies are ramping up AI-related infrastructure spending, and markets are rewarding those that can turn these investments into earnings, he said. Firms without a clear monetization strategy are facing more scrutiny.
OpenAI Retires GPT-4o Model
In related AI industry news, OpenAI announced on January 29, 2026, that it will permanently retire GPT-4o, one of its most emotionally resonant AI models, from both ChatGPT and the API in February. The company stated that only 0.1 percent of users are choosing to use GPT-4o every day, with the vast majority using GPT-5.2.
On February 13, 2026, alongside the previously announced retirement of GPT-5 Instant and Thinking variants, OpenAI will retire GPT-4o, GPT-4.1, GPT-4.1 mini, and OpenAI o4-mini from ChatGPT. The API shutdown will follow on February 16, 2026, giving users less than two weeks to migrate their workflows.
Emotional Attachment to Model
GPT-4o, launched in May 2024, sparked an unusually strong emotional connection with users due to its warm, natural conversation style. Many users felt it was more human-like and empathetic than newer models, preferring it over what some described as the colder GPT-5 default.
When OpenAI previously attempted to replace GPT-4o with GPT-5 as the default in August 2025, massive user backlash on social media and forums forced the company to reverse course and restore GPT-4o access. OpenAI pledged to provide advance notice for future changes, and the February 2026 retirement fulfills that promise.
OpenAI stated that retiring models is never easy, but it allows the company to focus on improving the models most people use today. The decision reflects broader industry trends toward strategic model consolidation and cost optimization as AI companies streamline their offerings.
Investment Climate Shifts
After three consecutive years of double-digit returns, the equity markets have proven incredibly resilient. However, the outlook for 2026 is for a bull market with a lowercase b, defined by episodic volatility, aggressive sector rotations, price-to-earnings multiple contraction, and outperformance by small- and mid-cap stocks, according to Craig Johnson at Piper Sandler.
Johnson noted that under the surface, a true stock-picker’s market is emerging with more constructive charts setting up across many sectors. The real opportunity this year lies in stock picking, not at the index level, he said.
Legendary investment strategist Jeremy Grantham, known for forecasts that have occasionally presaged major market dislocations, argues that the current AI boom is a classic technology bubble wrapped around a genuinely transformative innovation. The rule from history is that great technological innovations lead to great bubbles, the co-founder of GMO said. AI is maybe the most visibly impressive innovation of the last 100 years, perhaps of a magnitude equal to the railways of the 19th century.
Grantham warns that when investor confidence eventually reaches its limits, the deflating of the AI bubble will lead to a major stumble for the economy, a plunge in profits, and a severe decline in valuations.
