Microsoft faces securities fraud suit over Copilot after 10% drop

A securities fraud class action has been filed against Microsoft Corp. after its shares fell 10 percent on weak Azure growth and Copilot adoption.

The complaint, filed by Bleichmar Fonti & Auld LLP, alleges Microsoft and senior executives misled investors about Copilot's capabilities and adoption while concealing severe functionality issues, the firm said.

Microsoft's stock dropped $48.13, from $481.63 on Jan. 28 to $433.50 on Jan. 29, after the company reported disappointing fiscal second-quarter results and disclosed that Microsoft 365 Copilot premium customers totaled only 15 million, below analyst estimates. The case, City of St. Clair Shores Police and Fire Retirement System, No. 26-cv-02071, is pending in the U.S. District Court for the Western District of Washington and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The class period runs from May 1, 2025, to Jan. 28, 2026.

Investors have until Aug. 11 to seek appointment as lead plaintiff. The suit also alleges Microsoft concealed circular revenue arrangements with OpenAI and Anthropic, which committed to buying hundreds of billions of dollars in Azure services after Microsoft invested $13 billion in OpenAI and up to $5 billion in Anthropic.

The Wall Street Journal reported on Feb. 3 that Copilot was losing market share to rivals such as Google's Gemini, citing "confusing brand positioning and interoperability problems." The complaint names CEO Satya Nadella and CFO Amy E. Hood as defendants, alleging they certified reports that failed to disclose Copilot's deficiencies.

Microsoft has since recovered. Shares traded up about 2 percent on Aug. 3 near $470 after the company reported fiscal fourth-quarter revenue of $90 billion, with Azure growth of 43 percent and Microsoft 365 Copilot paid seats exceeding 30 million. Analysts at Citi, Wolfe Research, Piper Sandler and Cantor Fitzgerald raised price targets to between $522 and $600.

The lawsuit adds legal overhang to Microsoft's AI growth narrative even as the stock trades near record highs. Investors will watch the Aug. 11 lead plaintiff deadline and any further disclosures about Copilot adoption and Azure's reliance on OpenAI and Anthropic commitments.

This article is for informational purposes only and does not constitute investment advice.