Microsoft Stock Down Because of AI

By Douglas A. McIntyre Published Oct 7, 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 Down Because of AI — © HJBC / iStock Editorial via Getty Images

24/7 Wall St. Insights

Microsoft Corp. (NASDAQ: MSFT | MSFT Price Prediction) 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

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.