Microsoft has been sued by shareholders who are accusing the company of defrauding them and inflating its stock price through a failure to disclose its need to spend billions on AI infrastructure buildout and slowing growth in its cloud computing business Azure, Reuters has reported.

The class action suit, led by a Michigan pension fund, was filed in a Seattle federal court on Friday after the company’s share price fell 10 per cent on January 29 in response to its quarterly earnings report the day before.

According to Reuters, the fall erased around $357 billion of market value and marked the company’s largest single day decline in over five years.

In its second fiscal quarter for the year, ending in December, Microsoft reported a 39 per cent revenue growth in its cloud computing business, meeting analyst forecasts but down from the 40 per cent growth the quarter before, with a further drop to 37 or 38 per cent forecast.

The company also reported a nearly 66 per cent increase in its capital spend for the quarter, reaching $37.5 billion.

Reuters reported that the lawsuit said Microsoft attributed the slowing growth and higher capital spend to capacity constraints caused by diverting resources to AI-related research and development and its Copilot chatbot.

On Monday, Microsoft said it believes that the claims are “without merit”, adding that “Microsoft stands by the integrity of its public statements and will vigorously defend itself in court”.

Class action suits over alleged securities fraud are a common shareholder response to unexpected declines in share price, according to Reuters.

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