Microsoft Sued by Shareholders Over Expenses and Cloud Business

Microsoft has been sued by shareholders who accuse 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 lawsuit was filed in Seattle federal court after Microsoft shares fell 10% on January 29 in response to its quarterly earnings report the previous day. This led to a significant loss of market value, with over $357 billion erased, and Microsoft's stock suffering its biggest decline in nearly six years.

Microsoft did not immediately respond to requests for comment.

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

The lawsuit states that 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.

Microsoft, based in Redmond, Washington, is a major investor in OpenAI.

The lawsuit is led by the City of St. Clair Shores Police and Fire Retirement System in Michigan, and defendants include several Microsoft officials, including Chief Executive Satya Nadella and Chief Financial Officer Amy Hood.

The proposed class period runs from May 1, 2025 to January 28, 2026. It is common for shareholders to sue companies for alleged securities fraud after unexpected declines in stock prices.