Something unusual is happening in the software sector. And investors are starting to notice.
Jim Cramer is flagging an unexpected laggard: Microsoft (MSFT). Despite its dominance as the world’s largest software company by revenue and a leader in cloud and artificial intelligence, the stock has recently struggled to keep pace. Even as the broader software space attempts a rebound.
“Even when the software stocks are running, you can’t keep Microsoft’s stock from falling,” Cramer said in a tweet, capturing Wall Street’s growing frustration.
According to the Mad Money host, the weakness isn’t about Microsoft’s long-term position. Instead, it reflects massive AI-driven capital spending, which has raised concerns about near-term returns, along with brief fears around intensifying AI competition.
While he remains broadly bullish on the company’s future, he has questioned whether Microsoft’s AI execution is keeping up with peers during the latest earnings season.
So what’s behind the weakness? And should you be concerned?
As per CNBC, Cramer believes the broader sell-off in software stocks is being overdone. But Microsoft’s situation is more nuanced.
“The software companies are survivors,” he said on Mad Money. “ They can merge. They can adapt… but they’re priced for perfection though, and they do seem to have, let’s say, kind of a rugby-scrum feel about them, and we don’t pay up for scrum.”
In other words, the issue isn’t survival. Its valuation. In fact, a recent wave of selling was triggered in part by a widely discussed research note imagining a future where artificial intelligence disrupts white-collar jobs and weakens traditional software business models.
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Cramer pushed back on the extreme narrative.
“Yes, Wall Street can overreact better than anyone,” he said, arguing the market has turned a real concern into an “extinction event.”
Still, he acknowledged that AI could compress margins and slow growth. Meaning software stocks may not command the same premium valuations they once did.
And Microsoft, despite its dominance, is right in the middle of that shift.
Microsoft’s recent stock weakness comes despite strong fundamentals. This is actually what makes the situation more confusing for you.
The company reported impressive FY26 Q2 results:
Revenue rose 17% to $81.3 billion
Net income surged 60%
EPS climbed sharply, reflecting strong profitability
During the earnings release, CEO Satya Nadella emphasized that AI is already becoming a major business driver.
“We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises,” said Satya Nadella.
But the market is focusing on something else. What exactly? Costs.
Microsoft’s massive push into AI is coming with a hefty price tag. As per Yahoo Finance reports,
Capital expenditures hit $37.5 billion in one quarter
Spending jumped 66% year over year
That kind of investment is raising concerns about margins. That is especially if returns take time to materialize.
At the same time, growth in Azure cloud services showed slight signs of slowing, slipping from 40% to 39% year-over-year growth. That may seem small. But for a company like Microsoft, even minor deceleration can trigger outsized reactions.
Currently, MSFT has fallen more than 30% from its highs and is now trading close to its $344.79 52-week low. Over a mid-term duration, too, it has failed to impress as much, with a YTD return down 24.15% and a 1-year return down 5.44%
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Cramer remains broadly optimistic about software and about Microsoft’s long-term future.
But he’s also realistic about what comes next. He believes the market is entering a new phase where:
That doesn’t mean collapse. It means adjustment.
Cramer pointed out that companies can use AI to cut costs, improve efficiency, and adapt. Rather than be disrupted by it. At the same time, he highlighted that other sectors may benefit even more from AI-driven productivity gains, including:
Financials
Travel companies
Retailers
Meanwhile, companies like NVDA are already seeing explosive demand, reinforcing the idea that AI is creating opportunity, not just risk.
“For all the handwringing about how AI will be an engine of wealth destruction, it’s hard to deny that it’s also an incredible vehicle of wealth creation,” Cramer said as per CNBC.
So where does that leave Microsoft?
The company is still one of the most powerful players in tech. But for now, the market seems to be asking a tougher question: Can Microsoft turn its massive AI investment into growth fast enough to justify the cost? Until that answer becomes clearer, the stock may continue to face pressure, even in a sector that’s otherwise trying to move higher.
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This story was originally published by TheStreet on Mar 27, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
