Microsoft stock fell 3% after internal AI sales targets were quietly cut following weak performance

Microsoft shares fell by 3% on Wednesday in New York after new reporting from The Information revealed that the company quietly lowered sales expectations for its cloud-based AI marketplace.

At the same time, a legal complaint filed in Ireland accused the company of helping Israel’s military scrub surveillance data from servers in Europe. It was the biggest single-day drop for Microsoft since November 18.

The quota cuts happened inside Azure, where multiple divisions lowered sales targets for AI products after many salespeople missed their goals in the fiscal year that ended in June.

One team had aimed for customers to increase spending on the Foundry marketplace by 50%. Less than 20% of the team hit that goal. In July, Microsoft lowered the target to 25% for the current year.

Foundry is where businesses buy tools to build automated AI agents, separate from Microsoft’s more consumer-facing Copilot products.

Microsoft says targets weren’t lowered, denies report

When asked about the internal reset, a Microsoft spokesperson told The Information, “The Information’s story inaccurately combines the concepts of growth and sales quotas, which shows their lack of understanding of the way a sales organization works and is compensated.”

They added, “Aggregate sales quotas for AI products have not been lowered, as we informed them prior to publication.”

But it’s not just Microsoft. Some companies also allegedly told The Information that it’s still hard to calculate actual savings from using AI on routine tasks, and they’re concerned about the high cost of errors made by the models.

The Foundry marketplace, the focus of these failed targets, is not the same thing as Copilot. Copilot bundles AI into Microsoft’s office tools. Foundry is for developers building agents from scratch.

Most of the computing demand tied to AI workloads, though, still comes from OpenAI, which runs independently of Foundry. That relationship isn’t affected by the quota issue, but it doesn’t help with Foundry’s performance either.

Complaint in Ireland says Microsoft helped hide Israeli surveillance

The other problem for Microsoft landed the same day. An activist group filed a complaint with Ireland’s Data Protection Commission, accusing the company of violating EU privacy law by helping Israel’s military shift sensitive surveillance data out of Europe.

The complaint was based on information from Microsoft employees and internal records.

The complaint said that after a news article from The Guardian and Israeli outlets in early August revealed Microsoft’s servers stored millions of intercepted Palestinian phone calls, activity spiked.

A day after that article came out, three accounts tied to the Israeli military requested higher data transfer limits on Microsoft’s Azure platform. Internal approvals followed. The amount of data in those accounts plunged immediately afterward.

The company’s spokesperson allegedly responded, saying, “Our customers own their data, and the actions taken by this customer to transfer their data in August was their choice.” The spokesperson added, “These actions in no way impeded our investigation. That investigation led to a decision to cease some services in September, and ultimately to the customer storing their data with another provider.”

The investigation involved employees who worked directly with Israeli officials and was supported by business records. The complaint demanded that the Irish commission launch an immediate probe and block Microsoft from processing military and government data where it breaches EU law.

The European headquarters of Microsoft is located in Ireland, which gives the Irish Commission the job of enforcing the General Data Protection Regulation for the company.

Meanwhile, Israel’s conduct in Gaza continues to draw criticism. The International Criminal Court has issued arrest warrants for Israeli officials, accusing them of using starvation and deliberate attacks on civilians during the war. Israel denies the allegations.

None of this is new for Microsoft, which has faced employee protests and outside pressure over its ongoing contract with Israel’s Ministry of Defense. But the events of Wednesday brought two serious problems to the front—a business miss on AI, and a global accusation over war data.

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