Microsoft Drops 3.6% on FTC Probe, $190B AI Spend as Stock Recovers 30% From March Lows

On June 2, Microsoft (MSFT) fell 3.61%, less than the 3.78% drop in the Software & IT Services sector. However, the company did technically do better than its group. As the U.S. Federal Trade Commission looked more closely at Microsoft's business practices, including cloud services, AI, and combining software, the company's stock price went down.

License agreements and whether the company's actions make it harder for competitors or customers to switch are some of the things that are being looked at closely. There are again antitrust risks to talk about.

Adding to the pressure, Microsoft plans to spend about $190 billion in 2026, mostly on building data centers, GPUs, and AI infrastructure. The spending is 61% more than it was in 2025, and it's expected to have an effect on free cash flows and short-term profits.

The fact that insiders have sold $5.6 million worth of shares in the last three months hasn't helped the mood. A big problem with the Copilot AI service on Monday, June 1st, made people doubt the dependability of Microsoft's AI-based products for a short time.

What the Numbers Say: 30% Recovery, Still Worst Mag 7 of 2026

The drop hides a bigger rebound. Microsoft is still down 7% year-to-date, making it the worst-performing Magnificent 7 stock so far. However, it is up almost 30% from its March 2026 lows. In 2024, it did worse than the S&P 500, barely did better than it in 2025, and did worse than any other Mag 7 index in 2024. This year, only Meta (META) and Tesla (TSLA) are in the red among the Mag 7 stocks.

Several things have led to the recovery. Fears of a "SaaSpocalypse" have gone away. Microsoft's relationship with OpenAI has become more stable, and the upcoming IPO of ChatGPT is seen as a good thing for MSFT. In the March quarter, the company did better on both the top and bottom lines. It was thought that consolidated guidance would be lower than it was, but the Azure outlook was better than expected.

Michael Burry of "The Big Short" fame and Pershing Square's Bill Ackman loaded up on the stock this year. Ackman — a self-described "Warren Buffett devotee" — trimmed his Alphabet (GOOGL) stake and hinted he finds the Google-parent overvalued and MSFT undervalued.

The Nvidia Partnership: "Reinvent the PC"

The story about AI got some hardware help. A new N1X processor made by Nvidia and Microsoft was shown off. It will power new PCs from Microsoft and other OEMs. The CEO of Nvidia, Jensen Huang, said at Computex in Taiwan, "Microsoft and Nvidia are going to change the PC." This is the first line of PCs that has been fully redesigned and built from scratch in 40 years. A refresh supercycle could be sped up by AI PCs that boost sales of Microsoft's suite of goods.

Barchart polled 48 experts, and the majority of them still gave MSFT a "Strong Buy" rating. At $553.91, the average goal price is 20% higher than where it is now. But this year, the sell-side has been more pessimistic, lowering goal prices, especially after earnings calls.

The Valuation Tension: 25.5x P/E vs. $190B Capex

Microsoft's forward P/E multiple has grown to 25.5x, which is still less than the average over the last three years. However, the company's once-enviable free cash flows are being hurt by its heavy spending on AI.

The markets aren't sure that Microsoft will be able to make money off of its growing AI investments. The "AI laggard" label has been taken off of Alphabet, and the company is growing its cloud business much faster than both Microsoft and Amazon (AMZN).

Microsoft originally said that spending growth in fiscal 2026 would be lower than the previous year. That's why the $190 billion capex estimate was raised. Investors were scared by the change. The question is whether building out Azure's infrastructure will lead to higher revenues or whether spending is going faster than demand.

The average goal price among analysts is $553.91, which means the price will go up 20% from here. The 30% rise from the March lows shows that the floor was still there. But the stock's 3.61% drop on June 2—as a result of news about the FTC probe and the Copilot outage—shows that it is still sensitive to news about regulations and operations.

Capex of $190 billion will set the tone for 2026. The 25.5x P/E looks fair as long as Microsoft can show how Azure can be used to make money. If spending keeps going up faster than income, the multiple gets smaller.

The probe by the FTC is the regulatory snooze button. Keep an eye on the case to see if it moves on to formal charges or stays in the inquiry process. The IPO of OpenAI is the strategic spark. Microsoft's AI bet would be proven right by a good launch, which could also unlock value.

The N1X processor is the signal in the hardware. If AI PCs cause a refresh cycle, Microsoft's software sales will go up, even if cloud capex arguments happen.

The next earnings call is on the trade's clock. The $190 billion question is whether the story of spending is already priced in or is just beginning.