Michigan Pension Fund Sues Microsoft Over AI Revenue Claims

A Michigan pension fund has filed a class action lawsuit against Microsoft, alleging the company misled investors about its artificial intelligence revenue growth and artificially inflated its stock price before a significant decline in early 2025.

The St. Clair Shores Police and Fire Retirement System filed the complaint Friday in federal court in Seattle, claiming Microsoft misrepresented the performance of its AI-driven cloud computing business during its 2025 fiscal year, which ended June 30, 2025. The lawsuit names several executives as defendants, including CEO Satya Nadella, CFO Amy Hood, and executive vice president Rajesh Jha.

The core allegations

According to the complaint, Microsoft reported that its Azure cloud computing division had achieved 34% revenue growth year-over-year and positioned the platform as a continued growth driver. However, during an earnings call early this year, the company disclosed slower Azure growth than expected. Hood attributed the slowdown to supply constraints for AI technology, explaining that Microsoft had diverted high-performance computer chips to research and development.

Following the second quarter earnings report in January, Microsoft's stock dropped 10% in a single day—the company's largest one-day decline in nearly six years. The stock has continued to slide, down almost 17% for the year as of the lawsuit's filing.

The pension fund's attorneys argue that Microsoft "engaged in a scheme to deceive the market" about its AI business performance. The lawsuit also claims Microsoft's AI products, including Copilot, ranked poorly against competitors and that the company struggled to convert regular users to paid Copilot subscriptions.

Why it matters

This lawsuit arrives as Wall Street grows increasingly skeptical of massive AI investments across the technology sector. Microsoft spent more than $88 billion on capital expenditures during fiscal 2025 and projects spending over $144 billion in fiscal 2026—with AI investments for the calendar year reaching roughly $190 billion, according to Hood's April disclosure. The case tests whether companies can be held liable when optimistic AI projections don't materialize, potentially setting precedent for how tech firms communicate about emerging technology investments to shareholders.

Microsoft's response and recent performance

A Microsoft spokesperson said the company believes the allegations lack merit and will "vigorously defend itself in court," adding that Microsoft "stands by the integrity of its public statements."

During Microsoft's most recent earnings call in April, the company reported signs of strengthening AI demand, with Azure revenue growth reaching 40% year-over-year and the overall AI business projected to generate $37 billion in revenue for fiscal 2026. Wall Street's reaction was muted, with only a slight stock price increase in early May before another decline.

The lawsuit was filed by Keller Rohrback on behalf of the pension fund. These details were first reported by The Seattle Times.