Microsoft drops below $3 trillion market cap as tech selloff deepens

Microsoft shares dropped 3.07% to $399.09 on Tuesday, pushing the company's market capitalization to about $2.96 trillion as a selloff in high-growth technology stocks deepened across U.S. equity markets.

"Stock indices in Europe are buckling under the news that fresh Iranian strikes have hit parts of the Gulf," said Kathleen Brooks, market analyst at XTB, as diplomatic efforts to end the conflict appeared to stall. The weakness in European markets extended to the U.S., where the Nasdaq Composite slipped 0.7% and the S&P 500 fell 0.5%, while the Dow Jones Industrial Average dropped 0.6%.

Among the biggest decliners on the Nasdaq 100 were Atlassian, Datadog, Palo Alto Networks, Zscaler, Palantir Technologies and Arm Holdings, as investors took profits in some of the market's highest-rated growth names. On the Dow, IBM, Salesforce, Nvidia and Microsoft were among the largest drags, alongside Goldman Sachs and Boeing. The Russell 2000 fell 0.8%, showing the weakness extended beyond mega caps into smaller companies.

The selloff coincided with rising bond yields and oil prices approaching $100 a barrel, with Brent crude topping $98 and West Texas Intermediate trading near $96. The move in energy costs, driven by the ongoing conflict in the Middle East, has reignited concerns about sticky inflation. Markets have begun pricing in a modest chance that the Federal Reserve could raise rates before year-end, according to fed funds futures data. The FTSE 100 proved relatively resilient, down about 0.2%, while Germany's DAX fell 1.2%.

Microsoft's drop below the $3 trillion threshold marks a reversal from its position as one of the world's most valuable publicly traded companies. The software giant had briefly traded above the $3 trillion mark earlier this year, joining Apple and Nvidia in the exclusive club of companies with market capitalizations exceeding that level. The stock's decline came as the broader technology sector faced headwinds from rising rate expectations and elevated energy costs.

The company's AI business, which CEO Satya Nadella said surpassed an annual revenue run rate of $37 billion in the fiscal third quarter, has been a key growth driver. Microsoft holds an approximately 27% stake in OpenAI valued at around $135 billion, and the AI startup's confidential IPO filing last week added another layer of complexity to the investment narrative. However, the broader macro environment has weighed on the premium investors are willing to pay for future earnings, with higher-for-longer rate expectations compressing valuations across the technology sector.

The OECD on Tuesday cut its global growth forecast for this year to 2.8%, down from 3.4% in 2025, warning that a prolonged closure of the Strait of Hormuz could push growth to just 2.1%. The combination of slowing economic growth and elevated energy costs has created a challenging backdrop for equity markets, particularly for high-valuation technology stocks that are most sensitive to changes in discount rates.

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