MarketWatch First Take: Microsoft’s AI payday will take time, and investors need to be patient

by | Jul 25, 2023 | Stock Market

Investors who may have gotten ahead of their skis on artificial intelligence heard some sobering words from Microsoft Corp. on Tuesday, as its top executives reminded them that the payoff from AI will take some time, while spending will increase. In after-hours trading, Microsoft’s shares
fell nearly 4% during the company’s earnings call, as executives tried to tamp down Wall Street’s overexuberant expectations for the software giant and its head start in AI.

“Even with strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales” and its Copilot product reaches general availability, Microsoft Chief Financial Officer Amy Hood told analysts. She also warned that the company’s capital spending will rise, and increase “sequentially each quarter,” while Microsoft continues to spend on building out more of its cloud and data-center infrastructure to support the compute-intensive technology. Also read: Despite hype, tech earnings still won’t show many results from AI yet Microsoft is seen by investors as one of the tech companies poised to generate a lot of early revenue from its partnerships and products that are incorporating AI, and its shares have soared about 46% so far this year. The company first invested $1 billion in OpenAI, the creator of ChatGPT, in 2019, and increased its investment to an estimated $13 billion, according to news reports. Microsoft does expect to see some AI-based revenue in the second half of its fiscal year, from the most immediate Microsoft AI product that investors are excited about: its 365 Copilot software. Earlier this month, the company said 365 Copilot, an AI-powered tool for its Office suite, would cost $30 per user, per month, a price that one analyst suggested could be more expensive than the software suite itself. The 365 Copilot product is based on OpenAI’s GPT-4, the large language model that is also the basis for ChatGPT. “While there i …

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