Microsoft shareholders have filed a class action lawsuit against the company concerning its AI and cloud spending and business disclosures.

According to the complaint, which has been filed by The Rosen Law Firm on behalf of the plaintiffs, Microsoft allegedly made "false and/or misleading statements and/or failed to disclose" that it would need to increase its capex by billions of dollars, as well as other business disclosures.

Those disclosures include claims that Microsoft's Copilot products have been experiencing issues with "brand positioning, user experience, usage, data siloing, computational capacity, organizational, and interoperability problems," that the company's AI model "ranked well below competitors," and thus Microsoft was redirecting compute that could otherwise be used for "profitable Azure services" to improve its Copilot products and AI R&D.

The complaint said that when these trends were disclosed, "investors suffered damages."

The proposed class period runs from May 1, ​2025, to January 28, 2026.

In fiscal year 2025, Microsoft’s Azure revenue grew 34 percent to more than $75 billion, with a 14 percent gross margin growth in the company’s Intelligent Cloud segment. The lawsuit states that during the class period, Microsoft "represented that the company’s revenue growth would 'continue to be driven by Azure'."

"Defendants highlighted the purported success of Copilot and Microsoft’s foray into AI development, claiming that Copilot offered best-in-class capabilities and enjoyed widespread and growing user adoption. Defendants also downplayed concerns about the Company’s AI investments and business dealings with LLM providers and other companies," which the complaint alleges contributed to Microsoft's all-time stock value high of $550 per share.

The issues came in the earnings results released by Microsoft for Q2 FY2026, which covered the period up to December 31. The complaint said that Microsoft’s Azure growth "slowed suddenly" and fell "below analyst expectations."

"During the related earnings call, CFO Hood revealed that the slower Azure growth was primarily due to computational capacity constraints, as the Company had diverted central processing unit and graphics processing unit capacity to Copilot applications and AI-related research and development.

"Second, Microsoft revealed that its capital expenditures had increased to $37.5 billion during the quarter, causing the Company’s capital expenditures for the first six months of its fiscal 2026 to balloon to $72.4 billion compared to $88.2 billion for all of Microsoft’s fiscal 2025."

Following this earnings call, Microsoft shares declined by more than $48 per share to $433.50, later falling again to $393 per share, and again to $380. At the time of writing, Microsoft shares are valued at $399.76.

Earlier this month, the lawsuit states, Microsoft’s CFO of Commercial Products and Infrastructure Mat McBride said, in response to commentary that Copilot had failed to meet expectations, that Microsoft had been working to “improve the product rapidly over the last year,” which included the launch of “625 new features,” such that the “product is way different than it was 90 days ago.”

As reported by Reuters, Microsoft said on Monday it believes the claims are "without merit."

"Microsoft stands by the integrity of its public statements and will vigorously defend itself in ​court.”

The lawsuit comes just months after Oracle similarly faced a class action suit from shareholders over its AI spending, which claimed that the company concealed how much debt it would need to sell to support the AI buildout for Oracle's $300 billion OpenAI deal.