Will Microsoft’s Quarterly Earnings Burst the AI Bubble?

Microsoft Quarterly Earnings Report Overview

Microsoft recently reported its earnings for the quarter ending in June, disappointing investors despite showing strong annual growth.
The company’s stocks dropped over 7% in yesterday’s extended trading, with an additional 3% decrease today.

Financial Performance

Year-to-date, Microsoft’s stock is up only 11.78%, down from its peak of 17%.
Quarterly revenues increased by 15% year-on-year, reaching $64.73 billion, slightly below economists’ expectations of $65.24 billion.
However, net income exceeded expectations, standing at $22.04 billion compared to the estimated $20.08 billion, translating to an earnings per share of $2.95, also higher than anticipated.

The better-than-expected net income was due to lower-than-expected operating costs.
Despite this, the company’s cloud division grew by 19% annually to $28.52 billion, slightly below the market’s $28.68 billion expectations.

Focus on Cloud Computing

Microsoft’s cloud division, particularly the AI-based Azure service, is the most profitable segment for the company.
With Azure, Microsoft has been deeply involved in the race for artificial intelligence and has maintained a leading position against its competitors.
Additionally, Microsoft invested $10 billion in OpenAI, the startup behind ChatGPT and DALL-E, last year.

The AI frenzy significantly boosted Microsoft’s stocks to a record high of $430 in July.
Other tech giants such as Alphabet (Google), Amazon, and AI chip manufacturer Nvidia have also experienced remarkable increases.

The Burst of the AI Bubble

However, the AI bubble seems to have reached a turning point.
Microsoft, along with other tech stocks like Alphabet and Nvidia, faced sudden declines in stock value recently.
The current market trend indicates a possible overvaluation of AI technology, leading investors to be cautious due to high costs and relatively low margins.

Analysts have been warning about the overvaluation of tech giants for months.
Comparing revenue and profits, it’s clear that some companies might be overvalued.
Nvidia’s recent market performance, surpassing even Apple temporarily, raises concerns about the tech market’s valuation.

In conclusion, while AI has shown promising growth, investors are increasingly concerned about the sustainability of high costs and low margins in this sector.