Microsoft Corp.’s (NASDAQ: MSFT | MSFT Price Prediction) earnings impressed investors. Its stock rose 8% on the news, taking its market cap to over $3 trillion, closing in on Apple Inc.’s (NASDAQ: AAPL) $3.19 trillion. Apple’s stock has been falling recently and is down 15% this year.
Wall Street has been worried about Microsoft’s slowing cloud business revenue. Cloud computing is a crowded market led by AWS. However, Microsoft’s cloud results soared in the most recently reported quarter. Investors also worried that the company’s massive investment in artificial intelligence might not pay off for several quarters. The division with most of Microsoft’s AI revenue, labeled “Intelligent Cloud,” posted a revenue increase of 21% to $26.8 billion.
Microsoft’s overall revenue rose 13% to $70.1 billion for the quarter, and earnings rose 18% to $3.46 per share. As the numbers were reported, Microsoft CEO Satya Nadella said, “Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth.” The company also raised its guidance for the balance of its fiscal year.
Microsoft said it would invest $80 billion in AI data centers in fiscal year 2019. It faces tough competition from Amazon, Meta, and Elon Musk’s xAI. Microsoft had a tight relationship with OpenAI, which invested $14 billion. However, the private company has become more of a competitor than a partner. Over time, this split means Microsoft has more AI competition.
Microsoft’s real challenge is ahead of it. Its competitors will also invest tens of billions of dollars in AI server farms. One challenge is whether the United States can produce enough electricity to support these and whether the U.S. grid can handle the transmission.
The most challenging issue for investors is whether AI will have a massive financial return in the future. If AI is the most important technology development in history, companies with significant market share have a nearly uncapped upside potential.
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