Microsoft Corp. shares declined sharply on Thursday, underperforming a modest recovery in U.S. stock indices as traders remained cautious on large-cap technology and software names. The stock was trading near $386.26 just before 1 p.m. ET, down $11.10 from Wednesday's close, after moving between $386.06 and $399.20 during the session. The decline pushed Microsoft's market capitalization to approximately $2.88 trillion.
The broader tech sector showed signs of stabilization, with the Invesco QQQ Trust (QQQ) gaining $6.27 to $699.96 and the SPDR S&P 500 ETF (SPY) rising $1.32 to $726.75. Major Wall Street indexes traded higher late Thursday morning, with the Dow Jones Industrial Average up 0.54%, the S&P 500 adding 0.26%, and the Nasdaq Composite climbing 0.41% as chip stocks recovered some ground. However, software names remained under pressure, with Oracle also declining after its capital spending forecast exceeded analyst expectations.
The selling in Microsoft came amid reports that its Xbox division is preparing for significant layoffs once the current fiscal year ends on June 30. According to Bloomberg News, the company plans to cut marketing and other budgets, though the exact scope of the job reductions remains unclear. Microsoft has not yet commented on the report. The news adds to headwinds in the company's gaming business, which has already been struggling. In the fiscal third quarter, Microsoft's More Personal Computing segment saw revenue slip 1%, with gaming revenue down 7% and Xbox content and services revenue falling 5% year over year.
Despite these challenges, Microsoft's cloud and artificial intelligence businesses continue to deliver strong results. The company reported fiscal third-quarter revenue of $82.9 billion, operating income of $38.4 billion, and net income of $31.8 billion, with diluted earnings per share of $4.27. Microsoft Cloud revenue surged 29% to $54.5 billion, while Azure and other cloud services grew 40%. CEO Satya Nadella noted that Microsoft's AI business had reached an annual revenue run rate of $37 billion, a 123% increase from the prior year. CFO Amy Hood highlighted that results exceeded expectations across revenue, operating income, and earnings per share, driven by growing demand for the Microsoft Cloud.
On the dividend front, Microsoft announced a quarterly dividend of $0.91 per share, declared by the board on June 10. Shareholders of record as of August 20 will receive the payout, which is scheduled for September 10, 2026, with the ex-dividend date also set for August 20.
The stock's weakness on Thursday reflects a broader market shift in sentiment toward high-valuation AI and tech stocks. While Microsoft has historically been viewed as a defensive mega-cap holding, investors are now scrutinizing its AI-related capital expenditures and the sustainability of its growth. The S&P 500 technology sector has fallen 11% since its June 2 record high, entering correction territory, and the Nasdaq Composite tumbled 1.98% on Wednesday amid renewed geopolitical tensions involving the U.S. and Iran.
Microsoft's stock is caught between the strength of its cloud and AI franchises and a market environment that is increasingly punishing high price tags, weak software results, and large AI investment budgets. Even as the Nasdaq bounced, MSFT traded near its session low, indicating that investors are not giving the stock its usual defensive premium. Instead, they are treating it as an expensive AI play facing a potential shift in market sentiment.
