Microsoft faces a shareholder lawsuit filed Friday, June 12, in Seattle federal court, alleging the company defrauded investors 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 the City of St. Clair Shores Police and Fire Retirement System in Michigan, follows a 10% drop in Microsoft shares on January 29 in response to the company's quarterly earnings report released a day earlier. The single-day decline erased approximately $357 billion in market value and marked Microsoft's largest one-day stock decline in nearly six years.
Microsoft Calls Lawsuit Claims Without Merit
Microsoft stated on Monday, June 15, that it believes the claims are "without merit." The company added, "Microsoft stands by the integrity of its public statements and will vigorously defend itself in court."
Azure Revenue Growth Slows to 39% in Fiscal Second Quarter
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. The company 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 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.
Lawsuit Names CEO Nadella and CFO Hood as Defendants
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.
FAQ
What did Microsoft shareholders allege in the lawsuit filed on June 12?
Shareholders alleged that Microsoft defrauded investors 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 was filed in Seattle federal court on Friday, June 12.
How much did Microsoft's stock fall on January 29?
Microsoft shares fell 10% on January 29 in response to its quarterly earnings report released a day earlier. The decline erased approximately $357 billion in market value and represented Microsoft's biggest one-day stock decline in nearly six years.
Who are the defendants named in the shareholder lawsuit?
The defendants include several Microsoft officials, including Chief Executive Satya Nadella and Chief Financial Officer Amy Hood. The lawsuit is led by the City of St. Clair Shores Police and Fire Retirement System in Michigan, and the proposed class period runs from May 1, 2025 to January 28, 2026.
