Microsoft shares slumped 23% in Q1 2026 — a steeper drop than any of its tech peers or the Nasdaq, which fell 7% over the same period.
Investors cited deep concerns over Microsoft's AI strategy, its dependence on OpenAI, and questions about when massive AI infrastructure spending will yield returns. The Q1 selloff accelerated fears about the wider tech sector's AI economics.
The core issue is Microsoft's relationship with OpenAI. While the partnership has given Microsoft early access to cutting-edge AI models, it has also created a dependency that investors are increasingly uncomfortable with.
OpenAI's public complaints about Microsoft 'limiting' its ability to reach enterprise clients added fuel to the fire. The perception that Microsoft's biggest AI asset might become a competitor has rattled shareholders.
Shares partially recovered after the US-Iran ceasefire announcement, but Microsoft remains the worst-performing Magnificent Seven stock year-to-date. Analysts at Goldman Sachs maintained their buy rating but lowered their price target by 15%.