Microsoft stock dropped 10%, wiping out $357 billion in value.

Microsoft shares got hammered on Thursday, falling 10% and slicing off $357 billion in value in what is now the biggest one-day drop for the company since the world went into lockdown in March 2020.

By the end of Thursday trading session, Microsoft’s total value landed at $3.22 trillion, down from just under $3.6 trillion the day before.

The selloff came right after Microsoft’s earnings report hit the wire. A lot of traders weren’t impressed. The reaction was brutal. Software-focused investors ran for the exit, dragging the iShares Expanded Tech-Software ETF down 5%.

The Nasdaq Composite dropped 0.7%. Meta stock didn’t get caught in the mess. It actually shot up 10% after solid earnings and upbeat guidance the day before. But the heat stayed on Microsoft, and every weak spot in its numbers got picked apart.

Traders unhappy with cloud growth, Windows forecast, and lower margins

The biggest problem was Azure. The growth rate for Azure and other cloud services came in at 39%, just under the 39.4% Wall Street had expected. Not a huge gap, but enough to rattle confidence. On top of that, the company predicted $12.6 billion in revenue for its Windows and hardware business, officially called the More Personal Computing segment. That’s well below the $13.7 billion expected. The new quarter’s profit margin also came in lighter than some analysts hoped.

CFO Amy Hood tried to explain why cloud growth wasn’t stronger. She said if they’d handed more GPUs to Azure instead of keeping them for internal use, the numbers would’ve looked better. “If I had taken the GPUs that just came online in Q1 and Q2 and allocated them all to Azure, the KPI would have been over 40,” Amy said.

Ben Reitzes from Melius Research told CNBC the real issue is infrastructure. “I think that there’s an execution issue here with Azure, where they need to literally stand up buildings a little faster,” Ben said, pointing at Microsoft’s slow data center rollout.

AI spending raises concerns as Copilot fails to boost revenue

Some analysts are now raising questions about how Microsoft is spending on artificial intelligence. Karl Keirstead and his team at UBS said they weren’t seeing much traction with Microsoft 365 Copilot, the paid AI add-on tied to the Office suite. “M365 revs growth is not accelerating due to Copilot,” the team wrote, adding that many of their usage checks didn’t show strong demand. “We think Microsoft needs to ‘prove’ that these are good investments.”

Others on Wall Street took a more patient view. Mark Moerdler’s team at Bernstein said the company made a conscious choice to think long-term, not just chase quarterly pops. “Investors need, we believe, to understand that management made a cognizant decision to focus on what is best for the company long term,” the note said. But that didn’t stop the selloff.

Amy also mentioned that capital expenses would tick down slightly this quarter. That was one of the few soft landings in a report that knocked Microsoft off balance in a big way.