Google CEO says the “risk of under-investing in AI is dramatically greater than the risk of over-investing,” as investors mount pressure on Microsoft for its extravagant spending on AI projects

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AI's slow payoff despite Microsoft's heavy investment is raising concern among investors.

Robot standing in front of city with Microsoft logo
Robot standing in front of city with Microsoft logo (Image credit: Windows Central)

What you need to know

  • Microsoft's heavy investment in AI projects is raising concern among investors.
  • Its Azure cloud business' growth remained steady quarter-over-quarter at about 31% between April and June, despite Microsoft's significant investment.
  • Microsoft says it needs to continue investing in data centers to meet the ever-growing and high demand for AI.

Microsoft's recent shift and absolute focus on AI has raised concern among its investors. The tech giant ventured into the AI landscape face-first after investing billions of dollars in OpenAI to further extend their complicated partnership.

"Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry," indicated Microsoft CEO Satya Nadella during the company's earnings call for FY24 Q3. Admittedly, the company reported revenue increases (up 17%), operating income (up 23%), net income (up 20%), and diluted earnings per share (up 20%). 

According to a report by The AI Wired, investors have raised concern over Microsoft's spending on its cloud business. Admittedly, Microsoft's Azure cloud business has been positively impacted by the company's AI ventures. However, whether it justifies the billions invested in the category is unclear.

Interestingly, this news comes after a report suggested that OpenAI might be on the precipice of bankruptcy, with projections of $5 billion in losses. The ChatGPT maker might need another round of funding to remain afloat. 

A recent study indicates that 30% of AI projects might be abandoned after proof of concept by 2025. It attributes its predictions to poor data quality, a lack of guardrails, and high operation costs. 

While AI played a significant role in Microsoft's financial success in its latest earnings call, investors hope to spot a more considerable difference in the fiscal fourth quarter. Microsoft's Azure cloud business grew by 7% in the first three months of the year, with expert analysts predicting an expenditure of $13.64 billion compared to the $10.95 billion from the previous quarter. 

The AI landscape is a hard market to crack

Image of AI in front of a PC (Image credit: ChatGPT)

Market analysts have seemingly misread AI's earning trends and growth. For instance, Google's quarterly expenditure was approximately $1 billion more than expected. However, the payoff from its AI investment was "modest," further building on the investors' concern about the heavy investment in data centers and AI projects with little return to show. 

Google's parent company, Alphabet, will continue to set aside approximately $12 billion on capital projects every three months for the rest of 2024. However, investors are interested in seeing how Microsoft will grow its revenue in the AI landscape.

Google CEO Sundar Pichai recently indicated the "risk of under-investing (in AI infrastructure) is dramatically greater than the risk of over-investing." Microsoft justifies its massive capital injection in the AI landscape by stating that it needs to spend more on data centers to meet the high demand for AI. 

The tech giant claims it is getting more business for its large enterprise clients due to its AI-powered features, including the Microsoft 365 Copilot available across Word and Excel. Over half of the Fortune 500 companies pay Microsoft Copilot's $20 monthly subscription fee to make their workflow more effortless and less redundant. 

Elsewhere, the hype building around AI PCs and the looming death of Microsoft's Windows 10 operating system has contributed to a 3% growth in the global PC market in Q2 of 2024.

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Kevin Okemwa
Kevin Okemwa
Contributor

Kevin Okemwa is a seasoned tech journalist based in Nairobi, Kenya with lots of experience covering the latest trends and developments in the industry at Windows Central. With a passion for innovation and a keen eye for detail, he has written for leading publications such as OnMSFT, MakeUseOf, and Windows Report, providing insightful analysis and breaking news on everything revolving around the Microsoft ecosystem. You'll also catch him occasionally contributing at iMore about Apple and AI. While AFK and not busy following the ever-emerging trends in tech, you can find him exploring the world or listening to music.