Microsoft sued by shareholders over expenses, cloud business, AI

NEW YORK: Microsoft has been sued by shareholders who accused the company of defrauding them and inflating its stock price by failing to disclose slowing growth in its Azure cloud business and the need to spend billions of dollars on AI infrastructure.

The proposed class action led by a Michigan pension fund was filed in Seattle federal court on Friday, after Microsoft shares fell 10% on Jan 29 in response to its quarterly earnings report a day earlier.

About US$357 billion of market value was erased, and Microsoft’s stock suffered its biggest one-day decline in nearly six years.

Microsoft said on Monday it believes the claims are “without merit,” adding, “Microsoft stands by the integrity of its public statements and will vigorously defend itself in court.”

For its fiscal second quarter ending in December, Microsoft reported 39% revenue growth in its Azure and other cloud businesses, meeting analyst forecasts but down from 40% in the prior quarter, and projected 37% to 38% growth in the first three months of 2026.

Microsoft also reported US$37.5 billion of capital spending in its second quarter, up nearly 66% from a year earlier and above the US$34.3 billion that analysts projected.

The lawsuit said Microsoft attributed the slowing Azure growth and higher spending to capacity constraints as it diverted resources to AI-related research and development and to its Copilot chatbot, whose rivals include Google’s Gemini and OpenAI’s ChatGPT.