Google does it again, Microsoft disappoints, & more.

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🚨 News of the Week

MARKETS

Microsoft Disappoints

Starting with Microsoft, their quarterly earnings were quite a disappointment. Presented on Tuesday, the stock fell 6% after hours.

The major correction came after they announced their slower growth in its Azure business (cloud computing), from 31% last quarter to 29% this one, even though they are still growing faster than Google despite being a larger cloud.

In the meantime, they are increasing their investments in Generative AI equipment, reaching an astonishing $19 billion last quarter alone (divided into land and data center equipment building and straight AI accelerator spending), for a yearly projected cost of almost $80 billion.

For reference, NVIDIA’s AI data center business has a projected revenue run rate of $90 billion.

TheWhiteBox’s take:

At first, it may seem that investors are exaggerating. However, they might not be, as people are starting to become really anxious about the huge investments in Generative AI with no discernable return yet.

For reference, if we take the Azure CEO’s word, they are investing around $3 billion a month on H100s, meaning the company's GPU spending might have been on $12 of the $19 billion this quarter.

Once again, just like Google (who also fumbled the bag, as I covered in detail in this piece), Microsoft failed to mention any specific Generative AI revenues (as you’ll see below, things are looking even worse off), which obviously means they aren’t great (barely existing at this point).

Investors might have been fooled in the past with the growth of the cloud business (as AI revenues are part of it), but the failure to disclose actual returns on GenAI investments is starting to take a toll on the values of these companies as they might be simply pretending to have a business when they don’t.

Adding insult to injury, with Sundar and Zuck, the CEOs of Google and Meta, openly acknowledging that some of these investments will probably be written off and that they are long-term plays—a narrative also echoed by Amy Hood, Microsoft’s CFO, who says these investments are a “15-year investment”—the complete absence of potential returns in the short term has investors panicking.

But should they? As I commented often (click here and here for an in-depth analysis), they definitely should.

AI AGENTS

Microsoft Copilot Also Disappoints

In an article by Business Insider, an IT Executive from an undisclosed Pharmaceutical company acknowledged they dumped Microsoft Copilot365 “due to high cost and low value.”

This is Microsoft’s AI agent, which helps customers perform actions in the Office365 suite using an AI they can communicate with.

He even compared the capabilities of creating PowerPoint to “middle school presentations,” prompting the company to drop the service altogether.

TheWhiteBox’s…

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