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Actions of Microsoft Corp. They fell more than 20% in June, on track to record the steepest monthly drop since December 2000.
Twelve months ago, the Redmond, Washington-based company’s market capitalization was around $4 trillion. Today it amounts to 2.65 trillion dollars, behind Nvidia Corp., apple inc. and Alphabet Inc..
However, business is booming.
Revenue has grown 16% to 18% year over year for eight consecutive quarters. Profits have always exceeded Wall Street estimates and have also been increasing.
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So why is the stock down more than 35% since the beginning of 2026?
The answer is one word: capital spending.
Why the market stopped caring about what Microsoft makes today
Capex (capital expenditure) is the money a company spends on physical infrastructure.
For Microsoft, that means data centers for artificial intelligence. That line of spending, not income, is what is now driving the stock.
Capital spending reached $38 billion last quarter. Bank of America estimates that Microsoft’s 2026 capital spending will approach $190 billion in 2026.
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Microsoft is not alone. The five largest hyperscalers: Amazon.com Inc.Microsoft, Alphabet, Meta Platforms Inc. and oracle corp. – are expected to spend more than $700 billion in 2026.
The construction feeds back. More and more data centers are depleting their supply of chips and memory.
Prices go up. Spending is going up again.
The Chain That Makes Microsoft a Falling Stock
Rising capital spending means margins are under pressure, which means free cash flow declines. Microsoft’s capital spending increased 63% year over year. Free cash flow fell 10%.
Less free cash means fewer buybacks and smaller dividends, both things that reward shareholders.
Bank of America puts it clearly. Hyperscaler’s capital spending has increased from 70% of operating cash flow in 2025 to almost 100% in 2026.
Translation: there are almost no free dollars left for shareholders.
There is another side to trading. Since January, the semiconductor sector (as tracked by the iShares Semiconductor ETF – has increased by 94%. The Magnificent Seven, followed by the Roundhill Magnificent Seven ETFThey are down approximately 6%.
jeff bezos He once said, “Your margin is my chance.”
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In 2026, that idea has taken on new meaning.
Every trillion that hyperscalers divert from their own margins flows to the companies that build the AI stack: memory, semiconductors, cooling systems, optical networks, batteries, power infrastructure, everything needed to build AI data centers and train increasingly powerful models.
The market no longer values Microsoft for what it earns today. He is considering the enormous cost of what he will have to build tomorrow.
Is Microsoft investing in the future or sacrificing the present to get there?
Right now, investors seem to believe it’s the latter.
Image: Shutterstock
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