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Microsoft’s stock has fallen 24% this year, while the S&P 500 has gained 7%, lagging rival Alphabet by 133 percentage points over five years.
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OpenAI moved from a strategic ally of Microsoft to a direct competitor, eroding the AI edge on which its Azure cloud and Copilot products depended.
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Apple’s 2 billion devices give it a hardware base that Microsoft lacks, leaving Microsoft reliant on older Windows and Office for AI deployment.
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AI was supposed to be a tide that lifted all ships in the sector. Microsoft (NASDAQ:MSFT) is the major exception. The stock is down 24% so far this year. The market is 7% higher, and the market’s long-term trade is bad or worse. Over the past five years, the stock is up 38% while the S&P is up 72%. Rival Alphabet (NASDAQ: GOOG ) stock is up 171% in that period.
What is wrong is that Microsoft appears to be quite simple and based on quick analysis. If anyone has suffered the most loss in the AI sector, it is the company founded by Bill Gates. When it made a series of investments in OpenAI, it appeared to have taken a leading role in the industry, leading the way in the obvious field at that time. However, over time, OpenAI has become increasingly independent and is now more of a competitor than a collaborator.
Suppose relations between the two companies had become good? Microsoft would have gained an edge in the AI capabilities of its Azure cloud business. Its Copilot AI product won’t be so disastrous.
And, Copilot has been overtaken by Google, Anthropic and OpenAI. The Wall Street Journal reported, “After building on its partnership with OpenAI, Microsoft is moving ahead in the chatbot race. But data shows it is losing ground with users.”
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Although not universally accepted, it is widely believed that the winners and losers in the AI business are already determined, and there is no such thing as catching up.
Microsoft has also lost to Apple (NASDAQ: AAPL) in AI. At least Apple has more than two billion devices it can target with AI products, most of which are licensed from Google. Microsoft does not have such a large hardware base.
Has Windows and Office installed from Microsoft. Taking advantage of this has not been successful.
Microsoft now has to argue that AI is not important. Rather, it has legacy products. However, even its Azure cloud computing business faltered in the most recent quarter, so presumably, a stronger AI integration would have improved those numbers.
What Wall St. sees in Microsoft is a company that has lost the biggest tech race of the last half century
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