Microsoft is facing a lawsuit from shareholders who accuse the company of overstating the success of its artificial intelligence initiatives while downplaying the massive costs associated with building AI infrastructure.
The proposed class-action lawsuit, filed June 12 in a federal court in Seattle, alleges that Microsoft made “false or misleading” statements in earnings reports, conference appearances, and during its annual shareholder meeting.
In their complaint, the plaintiffs alleged that Microsoft’s leadership presented an overly optimistic picture of the rollout of its Copilot AI assistant and its partnership with ChatGPT creator OpenAI, while failing to adequately disclose the financial burden of building and operating the data centers needed to support those technologies.
The proposed class period spans from May 1, 2025, to Jan. 28, 2026, when Microsoft reported fiscal second-quarter 2026 earnings.
In that earnings report, Microsoft revealed that the growth in its flagship Azure cloud computing business had slowed to 39 percent, down from 40 percent in the previous quarter. Microsoft CFO Amy Hood said at that time the moderation was primarily driven by capacity constraints, as the company redirected central processing unit and graphics processing unit resources toward Copilot products and AI-related research and development.
The company also told investors to expect Azure growth to decelerate further to between 37 percent and 38 percent during the following quarter.
Ordinarily, a 1-percentage-point decline might not have drawn significant concern from investors. However, Microsoft paired that guidance with quarterly capital expenditures of $37.5 billion, a 66 percent jump from a year earlier. Much of that spending went toward acquiring high-end graphics processing units and custom semiconductor chips needed to train and operate large language models.
At the same time, Microsoft had converted about 15 million of the 450 million users of its commercial Microsoft 365 software suite into paid Copilot subscribers. Plaintiffs argue that the slower-than-expected adoption rate undermined Microsoft’s claims about the commercial success of its AI strategy and contributed to a sharp decline in the company’s share price.
On Jan. 29, the day after the earnings report, Microsoft stock plunged almost 10 percent in a single trading session, erasing $357 billion in market capitalization. This marked the software giant’s steepest single-day drop since 2020. By March 20, Microsoft shares dropped to a low of $380 per share, which was 30 percent below the class period high.
The lead plaintiff in the case is the City of St. Clair Shores Police and Fire Retirement System in Michigan.
Microsoft did not respond to a request for comment. There are signs, however, that the conditions underlying those investor concerns have improved since the period covered by the lawsuit.
In its fiscal third-quarter 2026 results, Microsoft reported that its annualized AI revenue run rate had reached $37 billion, up 123 percent year over year. The company cited strong demand for AI-related services, saying that the enormous amount of money it spent on building and optimizing AI infrastructure are “translating into operational gains.” It also reported overall revenue growth of 8 percent during the quarter.
As of the afternoon of June 15, Microsoft shares were trading at $399.
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