Microsoft sued by shareholders over expenses, cloud business, AI

Microsoft has been sued by shareholders who accused 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 led by a Michigan pension fund was filed in Seattle federal court on Friday, after Microsoft shares fell 10 per cent on January 29 in response to its quarterly earnings report a day earlier.

About $357 billion of market value was erased, and Microsoft's stock suffered its biggest one-day decline in nearly six years.

Microsoft said on Monday it believes the claims are "without merit," adding, "Microsoft stands by the integrity of its public statements and will vigorously defend itself in court.”

For its fiscal second quarter ending in December, Microsoft reported 39 per cent revenue growth in its Azure and other cloud businesses, meeting analyst forecasts but down from 40 per cent in the prior quarter, and projected 37 per cent to 38 per cent growth in the first three months of 2026.

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

The lawsuit said 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. 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.