Microsoft Stock Lags Market

By Douglas A. McIntyre Published Jul 19, 6:40AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Microsoft Stock Lags Market — © 2024 Getty Images / Getty Images News via Getty Images

24/7 Insights

Microsoft Corp. (NASDAQ: MSFT | MSFT Price Prediction) looked like an early leader in the artificial intelligence (AI) space.
Yet, shareholders may not benefit from it for years.

Microsoft Corp. (NASDAQ: MSFT) was supposed to be the big, successful winner as stocks rode the wave of artificial intelligence (AI). In January 2023, it invested in AI market leader OpenAI. The alliance became a tighter one when Microsoft said it would integrate OpenAI products into its cloud Azure platform in November of last year. Shortly after, OpenAI was valued at $80 billion in February, making the deal a financial coup. However, despite these successes, Microsoft’s stock has slightly lagged the Nasdaq. The index is up 24% while Microsoft is 21% higher over the past year.

Why the Delay?

Was the investment worth it?

Several things in the past year and a half could undermine a rise in its shares. First, it is now clear that AI will not bring large companies easy returns. Goldman Sachs described what it thinks will be a $1 trillion investment in generative AI as a long-term play that will not pay off for years. Companies like Microsoft that “got in early” seem to face earnings that will not show AI success for several quarters.

The New York Times recently wrote about Microsoft CEO Satya Nadella’s decisions regarding AI:

Risky bets on A.I. have become a habit for Mr. Nadella. Over the past five years, he has committed to investing $13 billion in another aggressive young company called OpenAI, even though it hadn’t yet made much money. And he told all of his lieutenants to find ways to build A.I. into Microsoft’s many, many products, even though the technology didn’t always work correctly.

Whether AI will be profitable for Microsoft is one of three major questions about investment decisions. After the company’s expensive choices, the question is whether its market share can stay well ahead of many start-ups that have raised billions of dollars. Perhaps more important is whether AI products from major rivals Alphabet, Amazon, and Oracle will take significant market share. In other words, the market could end up fractured.

Finally, and perhaps more critical over the long term, is the regulators’ view of whether Microsoft has started to corner the AI market. Earlier this month, Microsoft dropped a much-prized position as a board observer at OpenAI. EU regulators had threatened investigations several months ago. These regulators said they were “looking into some of the agreements that have been concluded between large digital market players and generative AI developers and providers.” They explicitly mentioned Microsoft’s deal with OpenAI.

What looked like a plan for Microsoft to lead the AI software industry has turned into a complex set of partnerships that may only pay off after years.

Be sure to grab a copy of our “The Next NVIDIA” report for other great AI stock ideas.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.