Microsoft Corporation (NASDAQ:MSFT) closed at $386.74 on Monday, down 0.9% from the previous session, as investor anxiety over the company's massive artificial intelligence capital expenditure overshadowed a significant workforce reduction. The stock underperformed the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ), which rose 1.4%, by roughly 2.3 percentage points.
Job Cuts Announced Amid AI Investment Push
Microsoft announced plans to eliminate 4,800 positions, representing about 2.1% of its total workforce. The Xbox gaming division will bear the brunt of the cuts, with 3,200 job losses, including 1,600 on Monday alone. The company also signaled it may sell or spin off several game studios following a period of heavy spending in the gaming sector.
Chief People Officer Amy Coleman informed employees that the affected roles are "not being replaced by AI," though she acknowledged that "AI is changing how work gets done." Over 30% of eligible staff opted for a retirement program, and more than 4,000 employees transitioned into new roles over the past year, according to The Verge.
Investors Focus on Capital Expenditure Risks
Despite the layoffs, investors reacted more strongly to the company's spending plans. Microsoft previously told analysts in April that it targets capital spending of roughly $190 billion for calendar 2026, including $25 billion tied to more expensive components. Fourth-quarter capital expenditure is expected to exceed $40 billion. CFO Amy Hood expressed confidence in the "return on these investments."
The market's concern was evident in the $27.1 billion drop in Microsoft's market capitalization on Monday, far exceeding the $900 million in one-off charges the company had flagged for fourth-quarter retirements. Analysts noted that the stock moved primarily on capex risk.
Parth Talsania, CEO at Equisights Research, described the layoffs as "portfolio reallocation and operating discipline," adding that investors now want to see AI monetization "scaling faster than AI-related costs." Gil Luria, managing director at D.A. Davidson, said the job cuts are a way for Microsoft to "pay for its AI investments."
Analyst Price Target Adjustments
Wolfe Research analyst Alex Zukin lowered his price target on Microsoft to $525 from $570, while maintaining an Outperform rating. Zukin cited concerns over AI spending and higher memory-chip costs. According to TipRanks, he raised his capital expenditure forecast for fiscal 2027 to $270 billion from $230 billion, but remains positive on the company's "full-stack monetization approach" and "Azure growth acceleration."
Wall Street targets remain largely bullish, with a consensus price target of $564.87 from 39 analysts tracked by Benzinga. StockAnalysis reports a 12-month target of $560.21 from 56 analysts, while TradingView lists an average estimate of $558.09, with a range from $400 to $870.
Azure Growth Remains a Bright Spot
Microsoft's Azure cloud business continues to be a key growth driver. In its fiscal third quarter, Azure and other cloud-services revenue grew 40%, and the company guided for fourth-quarter growth of 39% to 40% in constant currency, exceeding the 36.7% consensus from Visible Alpha. Microsoft's AI run rate reached $37 billion, according to Reuters.
Microsoft is scheduled to report its next quarterly results on July 28. Wall Street expects earnings per share of $4.24 and revenue of approximately $87.61 billion.
