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Technology


MICROSOFT STOCK DOWN BECAUSE OF AI

HJBC / iStock Editorial via Getty Images
Douglas A. McIntyre
Published: October 7, 2024 6:40 am


24/7 Wall St. Insights

 * Microsoft Corp. (NASDAQ: MSFT) stock has lately underperformed the broader
   market.
 * Did the tech giant invest too much in artificial intelligence with little to
   show for it?
 * Also: Discover the Next Nvidia.

Early in the year, Microsoft Corp. (NASDAQ: MSFT) invested $10 billion in
OpenAI, the emerging company at the heart of the artificial intelligence (AI)
revolution. The deal was based on a $29 billion valuation for the company. Part
of the reason was the belief that Microsoft had fallen behind its rivals in the
sector. Another was that it needed new features for its Azure cloud business,
which was second in cloud market share to Amazon’s AWS.



The deal pushed Microsoft’s stock up, and it outperformed the market for much of
the first half of 2024. Then, its shares slowly underperformed. They are up only
10%, while the market is 20% higher year to date. What happened? Some investors
think Microsoft’s investment was too much too soon. They see Microsoft as a
highly aggressive investor in AI, but the investment probably will not help the
bottom line this year, and perhaps not next. Its implementation across the
company may hurt the bottom line.

Microsoft’s second problem is that its lead in AI may not last, if it exists at
all. Alphabet Inc. (NASDAQ: GOOGL), in particular, has launched its Gemini AI
features. Its applications go well beyond business ones. Gemini is part of a
large portion of Google’s search results.

Apple Inc. (NASDAQ: AAPL) will launch AI features in its new iOS 18 this month.
Investors are skeptical whether it will help sell iPhones, but it is still
another competitor for Microsoft. Amazon.com Inc. (NASDAQ: AMZN) has announced
AI features in its AWS products.

The big mega-cap companies are not Microsoft’s only competitors. Anthropic leads
several other large, independent AI companies. Elon Musk’s xAI has built the
largest AI server center in the country and says he is building a
“supercomputer.” Even if he is exaggerating, it will be another AI rival.

Investor concern about Microsoft and its OpenAI deal centers on the fact that
there is little entry barrier to the commercial or personal AI market–if a
company has billions of dollars. No single company has a significant product
lead over the others. Therefore, Microsoft’s lead does not exist.

AI Is Set to Explode in 2025

 

“THE NEXT NVIDIA” COULD CHANGE YOUR LIFE

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took off.

But if you missed out on NVIDIA’s historic run, your chance to see life-changing
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The 24/7 Wall Street Analyst who first called NVIDIA’s AI-fueled rise in 2009
just published a brand-new research report named “The Next NVIDIA.”

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Read more: Technology, Microsoft AI, Microsoft stock, openai

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