Pershing Square Capital Management, the hedge fund run by billionaire investor Bill Ackman, will disclose a new position in Microsoft Corp. in a regulatory filing later Friday, according to a Reuters report. The move comes as Microsoft shares have lost about 15% of their value this year, weighed down by investor anxiety over the company's massive artificial intelligence investments and slowing growth in its cloud computing business.
Ackman described Microsoft's current valuation as "highly compelling" and said the stake was built after the stock declined following the company's fiscal second-quarter earnings report, which disappointed investors on both cloud growth and capital spending. The hedge fund's entry puts a spotlight back on the technology giant's aggressive spending plans, which include roughly $190 billion in capital expenditures for calendar 2026, including $25 billion tied to higher-cost components such as chips and data center infrastructure.
AI Investments Under the Microscope
Microsoft's pitch to shareholders hinges on its AI investments paying off through its Azure cloud platform and the Microsoft 365 Copilot productivity suite. The company reported revenue of $82.9 billion for the quarter ended March 31, with net income rising 23% to $31.8 billion. Microsoft Cloud revenue reached $54.5 billion, up 29%, while Azure and related cloud services surged 40%. However, the spending narrative remains a key concern, with CFO Amy Hood outlining the $190 billion capex plan for 2026.
CEO Satya Nadella told investors during the latest earnings call that Microsoft's AI business has reached a $37 billion annual revenue run rate, up 123% year over year. Paid seats for Microsoft 365 Copilot have surpassed 20 million, and approximately 90% of Fortune 500 companies are using active agents built on Microsoft's low-code and no-code platforms. These metrics, while impressive, have not fully alleviated worries about whether revenue growth can keep pace with the steep costs of chips, energy, and data center construction.
Competitive Pressures and Strategic Shifts
Competition in the AI space has intensified over the past year. Alphabet's Google and Amazon are accelerating their own AI initiatives, and Microsoft's once-clear advantage through its partnership with OpenAI is no longer as pronounced. Reuters reported this week that Microsoft is exploring deals with AI startups, including Inception and code-generation company Cursor, as it considers reducing its reliance on OpenAI. The company has warned it will remain capacity-constrained through at least 2026, meaning even with outsized spending, it may not have enough computing resources for every customer.
Meanwhile, Microsoft's LinkedIn unit is set to lay off about 875 employees, roughly 5% of its staff, even after reporting a 12% revenue increase last quarter. The move reflects a broader tech industry trend of reallocating resources toward AI while cutting costs elsewhere.
Ackman's Bet and Market Reaction
Ackman's investment aligns with his historical pattern of buying into large-cap technology names after Wall Street has tempered its expectations. He dismissed concerns about Azure rivals and Microsoft's evolving OpenAI relationship as "overblown" and endorsed the capital spending plan as necessary for long-term growth, according to Reuters. Matt Britzman, senior equity analyst at Hargreaves Lansdown, told Reuters that the stake fits his view that Microsoft still has "scope to re-rate" and that the current share price is "not justified."
Shares of Microsoft last traded at $409.43, giving the company a market capitalization of approximately $3.05 trillion. Investors will be watching the 13F filing later Friday for details on the size of Pershing Square's position. While Ackman's endorsement provides a high-profile vote of confidence, it does not guarantee that AI-fueled gains will materialize soon. The debate over whether Microsoft's massive spending will ultimately drive lasting profit growth remains very much alive.
