Tech giants are getting caught in a compute conundrum
Microsoft has had a tough year on the stock market, with its cloud business being a blessing and a curse.
Microsoft CEO Satya NadellaSven Hoppe/picture alliance via Getty ImagesThis post originally appeared in the Business Insider Today newsletter.You can sign up for Business Insider's daily newsletter here.The past 12 months have not been kind to Microsoft.
Once the most valuable company in the world, the Big Tech titan's share price has been sliding. Microsoft's stock dropped 19% in June, its worst month since the dot-com crash. Some of its top brands, like Microsoft 365, Copilot, and Xbox, are facing serious headwinds and questions about their future.
BI's Ashley Stewart, our resident Microsoft expert, broke down how the tech giant is trying to mount a comeback on multiple fronts.It wasn't always this way. A few years ago, Microsoft was the top dog, getting praised for its foresight on the AI revolution.
An early investor in OpenAI, Microsoft also quickly implemented AI into its search engine, Bing.AI's volatility is bound to swing companies' fortunes quickly, but it's hit Microsoft particularly hard. Its 12-month stock performance (down roughly 25%) is the worst of the Magnificent Seven by a decent margin.
(Meta is the next closest, down almost 17%.)Microsoft will get another test on Wednesday when it reports earnings after the bell.At the heart of Microsoft's challenge is a classic business dilemma: Does it cash in on demand today or focus more on its long-term goals?
Compute is the name of the AI game. Microsoft has the benefit of a massive cloud business in Azure that can help customers meet those needs.But Microsoft's cloud business is a gift and a curse.
There is only so much compute to go around, and Microsoft has its own AI plans it needs that infrastructure for.That means a decision: Allocate those resources toward its clients or itself?The former leads to the more immediate boost to the top line, but comes with a risk.
Less compute for Microsoft means fewer resources to develop and run its products, which could set it further back in the AI race.Keeping more c
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