Microsoft is heading into its quarterly earnings report at a time when investors are more bearish on the Windows owners than at any time in more than a decade. The pessimism reflects doubts as to whether the software giant’s massive artificial intelligence spending will translate into sufficient profits. About 92 million Microsoft shares are currently sold short, representing 1.27% of the company’s public float, according to S3 Partners. That marks the largest short interest as a percentage of float since May 2015 and the largest increase in short interest among the Magnificent Seven stocks. S3 also said there has been virtually no short covering ahead of Microsoft’s closely watched earnings report, due after U.S. markets close Wednesday, as bearish investors hold their positions. The pressure intensified recently after Alphabet raised its 2026 capital expenditure forecast and reported accelerating cloud growth. Alphabet slumped nearly 8% last week after the news. Microsoft fell 3% as investors focused on the prospect of even larger AI infrastructure investments across the sector. “Alphabet’s capex boost increases the odds of similar behavior” from Amazon and Microsoft, Evercore ISI head of internet research Mark Mahaney wrote in a note Wednesday. The market reaction highlights a shift in investor sentiment after more than three years of enthusiasm surrounding AI, ever since ChatGPT debuted in late 2022. While demand for AI services continues to grow, investors are increasingly questioning whether hyperscale tech companies can earn attractive returns on the hundreds of billions of dollars they’re committing to data centers, AI chips and networking infrastructure. Microsoft has been among the biggest investors in artificial intelligence. In April, the company led by CEO Satya Nadella projected about $190 billion in capital expenditures and finance leases for the year, including roughly $25 billion tied to higher component costs, as surging demand for AI chips tightened memory chip supplies. Shares of Microsoft have fallen more than 18% this year, underperforming the S & P 500 by almost 25 percentage points.
