The Math Behind Microsoft's AI Boom Doesn't Add Up--And Investors Are Finally Noticing

Shares of Microsoft (NASDAQ: MSFT) tanked connected Thursday pursuing a quarterly study that spooked investors. While the header numbers looked great, immoderate cracks successful the AI maturation communicative started to emerge. A dense dependence connected OpenAI, soaring superior spending connected short-lived CPU and GPU assets, and anemic adoption of Microsoft's ain AI products overgarment a unsmooth representation for the tech giant.

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Microsoft's remaining show work present sits astatine $625 billion, an astounding figure. Here's the problem: $281 cardinal of that full is tied to contracts with OpenAI. Yes, the aforesaid OpenAI that reportedly declared "code red" successful December arsenic contention gained ground. The aforesaid OpenAI that is present afloat steam up connected putting ads into ChatGPT, a determination erstwhile called a "last edifice for america arsenic a concern model" by CEO Sam Altman.

Microsoft is going to put unthinkable sums of currency successful gathering AI infrastructure for a institution that appears to nary longer person immoderate meaningful competitory advantage, and that besides has mega-contracts with different providers, including Oracle. Microsoft spent $37.5 cardinal connected superior expenditures successful the astir caller 4th alone, with two-thirds of that wealth going toward short-lived assets similar GPUs and CPUs.

Microsoft CFO Amy Hood tried to easiness capitalist concerns by saying that the GPUs the institution buys are already contracted for astir of their utile lives. There's immoderate uncertainty implicit however rapidly information halfway GPUs should beryllium depreciated, fixed however overmuch they amended with each generation, and an expert expressed interest astir the spread betwixt declaration lengths and utile lifetimes.

However, this statement falls flat. The existent hazard is that OpenAI, astatine immoderate constituent implicit the adjacent fewer years, becomes incapable to fulfill its broadside of the monolithic contracts it's signed. Under that scenario, Microsoft volition person a clump of costly AI infrastructure without a customer.

While Microsoft absorption is trying to person investors that determination isn't overmuch hazard progressive with its OpenAI deals, that is intelligibly not the case.

Microsoft 365 Copilot is the company's AI instrumentality built into its productivity apps. The institution ended the 4th with 15 cardinal paid seats.

Here's the problem: There are 450 cardinal paid seats for Microsoft 365. So far, contempt Microsoft's monolithic investments successful AI, Copilot's penetration complaint is hardly implicit 3%. Commercial customers look to beryllium highly reluctant to wage for Copilot.