- Microsoft shareholders accuse company of hiding risks of AI spending
- Azure growth has slowed as AI infrastructure demands consumed computing resources
- Investors say key business challenges haven’t been fully disclosed
Microsoft is facing a class-action lawsuit from shareholders who say the company failed to properly disclose the financial impact of its AI spending.
The complaint argues that investors were only given part of the picture, omitting key details about spending requirements, cloud infrastructure limitations and broader challenges related to Microsoft’s AI push.
The proposed class period runs from May 1, 2025 to January 28, 2026, during which Microsoft shares reached record highs before falling again.
The lawsuit, filed by The Rosen Law Firm on behalf of investors, claims that Microsoft made misleading statements or simply omitted information important to its business operations.
According to the filing, company executives talked up Copilot’s performance and the broader AI push while downplaying concerns about costs and operational constraints.
Court documents say Microsoft described Copilot as offering industry-leading capabilities and high adoption, language that helped maintain investor confidence at the time.
The complaint goes further, alleging that Microsoft never fully disclosed issues related to user experience, interoperability, computing resources, internal organization and data management.
Shareholders also say Microsoft’s LLMs lagged behind some competitors, requiring additional resources and development work to keep pace.
According to the lawsuit, a significant portion of IT capacity was removed from other revenue-generating services and redirected to Copilot and AI research.
In fiscal 2025, Azure revenue grew 34% to more than $75 billion, and Microsoft has repeatedly told investors that future growth will continue to be driven by Azure.
Azure slowdown and rising spending attract investors’ attention
Things came to a head after Microsoft released its financial results for the second quarter of 2026, covering the period through December 31.
The filing said Azure’s growth unexpectedly slowed and fell below what analysts expected, raising new doubts about the company’s infrastructure strategy.
During the earnings conference call, CFO Amy Hood reportedly attributed the slowdown largely to computing capacity constraints.
The complaint claims that CPU and graphics resources were directed toward Copilot and other AI models without much to show for it.
At the same time, Microsoft revealed capital expenditures of $37.5 billion for the quarter, bringing spending for fiscal 2026 to $72.4 billion over just six months.
That figure was already approaching the $88.2 billion Microsoft spent in all of fiscal 2025, according to the lawsuit.
Following these revelations, shares fell more than $48 to $433.50, then continued to slide to $393 and finally to $380.
At the time the complaint was reported, Microsoft stock was trading around $399.76.
Microsoft executives, for their part, insist the company is doing everything it can to improve its AI tools and products.
Over the past year, Microsoft says it has rolled out 625 new features, calling the product “very different than it was 90 days ago” as part of an effort to “rapidly improve the product.”
Microsoft said PK Press Club the claims are “baseless” and said he “stands by the integrity of his public statements.”
Via DataCenterDynamics
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