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[1]
Microsoft rode the cloud to new heights: Can it do the same with AI?
When Satya Nadella entered Microsoft's C-suite in 2014, the company wasn't one of the tech darlings dazzling Wall Street. After founder Bill Gates turned the CEO role over to Steve Ballmer in 2000 and until Ballmer stepped away in 2014, Microsoft's stock price basically followed the market. The company was still printing money thanks to its dominance in personal computing software. But it couldn't draw futurist headlines like those chasing companies that represented FAANG, a catchall acronym for Facebook, Apple, Amazon, Netflix and Google, the sexy tech stocks of the early 2010s. While Apple and Google seized the smartphone market, Microsoft fumbled its Windows-powered cellphone. As it revolutionized retail, Amazon also beat Microsoft to the punch on cloud computing with its debut of Amazon Web Services in 2002. Microsoft was resting on its laurels, even if those behind the scenes were feverishly trying to break into new markets with ultimately doomed products like the Zune. Enter Nadella, the engineer. Climbing through the ranks at Microsoft in various product divisions, Nadella had found a way at each stop to bring the company into a new digital age: take it to the cloud. As a concept, cloud computing is abstract. It took years to drag customers, both commercial and consumer, into Microsoft's cloud umbrella, Azure. But the bet paid off. And with the winnings, Nadella and others are pushing more chips each year into a technology better known than cloud computing but perhaps even less understood: artificial intelligence. From July 2024 through June 2025, the company projects it will have spent $80 billion on AI infrastructure, mostly by building data centers. That represents almost 33% of Microsoft's total revenue for 2024, which the company reported as $245 billion. Microsoft isn't all in, but it's still a big bet for a company worth $2.9 trillion. To the cloud You'd be hard-pressed to find someone who says "send that to me in a WordPerfect document." Nobody tracks their company budget in a Lotus 1-2-3 spreadsheet. Two applications that were ubiquitous for computer users in the 1980s are now completely lost to history thanks to Microsoft Office. Those Office products -- chiefly Word, PowerPoint and Excel -- once drove the Redmond-based tech giant. Under Nadella, cloud computing outstripped them all. When Nadella was named CEO, Office and the cloud were essentially tied in terms of revenue. Office brought in $24.3 billion in revenue. Microsoft's cloud computing division reported $21.7 billion in sales that year. Cloud computing is booming for Microsoft. Last year, Intelligent Cloud reported more than $100 billion in annual sales. Office's revenue was about half of that. Though tens of thousands of employees are underneath Nadella developing Microsoft's successful cloud products, it's Microsoft's chief who's been credited with turning around a company that continually failed to stay on the cutting edge of technology for more than a decade. Windows didn't make a dent in the smartphone market, now the domain of Apple's iOS and Google's Android operating systems. The ill-fated Zune didn't take down the iPod. And though MSN looked to be a contender as a search platform early on, the company lost interest in capturing that market before Google did. Though it's a success now, Microsoft was late in launching its cloud platform, Azure. Amazon Web Services entered the arena in 2002, six years before Azure did. Amazon spent that time gobbling up market share. While Microsoft and others were growing cloud services slowly, Amazon Web Services was humming. Amazon still has a healthy lead in the cloud market, with about 30% of it, according to the Synergy Research Group. But Microsoft's share has climbed to 21%. After more than a decade of dragging customers to the cloud, Nadella and Microsoft are pulling them toward AI, a technology that's costly, unreliable and greedy, using vast amounts of energy and water, but potentially extraordinarily lucrative. General-purpose technology Tech companies have developed large language models and machine learning products for the past decade that fall under AI. It's technology that allows a robot vacuum to clean a house more efficiently and produces better predictive ads while you're browsing the internet. But the flashier products are in the zeitgeist now. Chatbots that can craft essays and image generators that produce uncanny pictures are all available to the public. The tech industry is scrambling to include AI -- or at least the term AI -- in new products, annual earnings calls and marketing efforts. Facebook parent company Meta injected AI chatbots into its social media platforms, while Expedia has an AI feature for travel planning and Google's search has been handed over to the technology. For about $1,000, you can even own the world's first AI-enabled grill from a company called Brisk It. Microsoft's biggest consumer-facing AI product has been Copilot, a complement to the company's Office products that can automate tasks. Behind the scenes, Microsoft plans to pour money into AI. In a regulatory filing from October, Microsoft said it has committed $13 billion in investments toward OpenAI, an AI research organization that develops chatbots and image generators. Microsoft has such a large investment in the ChatGPT maker that it reported a $683 million expense due to its equity stake. As Wall Street rides the roller coaster of AI hype, Microsoft claims it's chasing the technology almost altruistically. The company believes that AI is a general-purpose technology. "A single-purpose technology is a great advancement and helps a lot of people," said Mary Snapp, vice president of strategic initiatives for Microsoft, in an interview with The Seattle Times. "Like my electric sewing machine when I was growing up. Boy, I sewed a lot of clothes and it got me to the prom, but it didn't do anything else." But an example of general-purpose technology, she said, is electricity. It spawns innovation and boosts productivity. An ambassador for the company's policy and tech efforts, Snapp travels around the world trying to demystify AI and advocate for retraining workforces. She likens it to the government trying to drive social acceptance of electricity in rural areas in the 1930s to build the electric grid. "We needed people to know how to run electrical appliances at scale and in industrial settings," Snapp said. "We're going to need the same thing with artificial intelligence." AI in action In early March, Microsoft President Brad Smith was in Tanzania to see Microsoft's AI for Good Research Lab in the field. The technology's selling point is improved productivity and efficiency in any setting. So, how could it help conservation? The lab had been partnering with the Wild Nature Institute, a conservation group, and was working with the organization to track the East African country's giraffe population. "Turns out that AI is critical," Smith said in an interview with The Seattle Times. "Every giraffe is unique, so for decades, these scientists would go out into the wild and they would have these diagrams of the giraffes that were drawn. Now you take a photograph, AI crops it, and then it instantaneously matches that giraffe to the giraffe in the dataset." Outside of Microsoft's research efforts, the company has already introduced its customers to AI. Deb Cupp, president of Microsoft's business operations across North America and South America, is in charge of an $80 billion products business that's now tasked with delivering AI to customers and educating them on the technology. "We spent time explaining what AI was and where the areas of opportunity actually were," she says. "We started to help customers think through whether they should try and create use cases, finding ways to fit in the technology. But the answer is actually the complete opposite." Renton-based Providence Health & Services said it's been working with the tech giant to identify use cases for AI. Health care has been moving to the digital world for the past 10 to 15 years, a move that Providence said has set it up for AI. Susan Huang, chief physician executive for health care giant Providence, said AI already has more buy-in than the organization's move to the cloud years ago. "AI is part of the colloquial dialogue whereas cloud-based services were somewhat niche," Huang said. "Whether you're a caregiver, doctor or nurse, everyone has an idea about how AI can be applied. And they're already using it on the outside and in their personal lives." It uses a lot of energy. The International Energy Agency said in a report last year that from 2022 to 2026, global electricity demand from data centers could double in part due to AI. The demand from data centers would be roughly equal to the entire electricity consumption of Japan. The average amount of electricity used in a traditional Google search is 0.3 watt-hours. For a ChatGPT request, it's about 2.9 watt-hours, the equivalent of running an LED light bulb for roughly 17 minutes. Essentially, the company is looking in the margins for where it can cut back on energy and water consumption while tightening AI's belt. If the models and code can be more efficient, they'll use less energy with each request. AI's other issue is its tendency to hallucinate. Google's Gemini feature regularly spits back incorrect information, as it's drawing from unreliable sources across the internet. OpenAI's ChatGPT has made up facts and gets tricked by word problems. Grok, the AI platform for X, routinely aggregates trendy jokes and reports them back as news. A recent study from the Columbia Journalism Review found that AI search tools were "generally bad at declining to answer questions they couldn't answer accurately, offering incorrect or speculative answers instead." Former Microsoft Chief Technology Officer Nathan Myrhvold believes it will take a miracle or maybe five for AI to reach human-level understanding. At Geekwire's Microsoft@50 anniversary event on March 20, Myrhvold expressed optimism for AI. But the feature it lacks is the ability to take abstract concepts and find meaning, as humans can. It can't reason in the abstract as humans do until a miracle happens. "And that could happen tomorrow. Or maybe it already happened tonight and they just haven't told us," Myrhvold said. "Or it could take another 10 years." For now it's about getting a return on investment and satisfying Wall Street. How Microsoft makes money through AI is a bit murky because it's injecting the technology throughout its revenue segments. But Nadella gave analysts a good sales pitch in January, during the company's latest earnings call. The company said its AI business has a revenue run rate, effectively a projection of revenue for the next year, of $13 billion. On the same day, Microsoft revealed it spent $22.6 billion in a single quarter on AI infrastructure. Nadella and the company deem those rising expenditures necessary. "As AI becomes more efficient and accessible," Nadella said, "we will see exponentially more demand." 2025 The Seattle Times. Distributed by Tribune Content Agency, LLC.
[2]
Microsoft and the next 'technological frontier'
In late 2022, Satya Nadella made what might be the defining bet of his career: pouring billions into OpenAI while restructuring Microsoft around artificial intelligence. At first, the move looked like strategic genius. While Google, Apple, and Meta scrambled to catch up in the AI race, Microsoft appeared to have secured the winning horse, giving it a commanding early lead. Wall Street rewarded this vision, adding over a trillion dollars to Microsoft's market cap. By early 2025, however, that vision has collided with a harsher reality. Microsoft now faces a perfect storm of challenges in its AI gambit: massive data center pullbacks, lagging stock performance relative to tech peers, growing tensions with OpenAI, and a market that may be showing some slow down in its interest in all things AI. For a company that has masterfully navigated every technological revolution of the past five decades, these warning signs suggest its biggest bet yet may be faltering. The stock market's verdict has been particularly harsh. Microsoft shares narrowly avoided their first eight-week losing streak since the 2008 financial crisis only through a last-minute rally on March 21, according to CNBC. Since reaching a closing high of $467.56 in July 2024, Microsoft is down about 16%. Even more telling, Microsoft is down 7% for the year while other AI-focused tech giants have surged, making it the only Magnificent 7 tech stock without a gain over the past year. Behind the scenes, Microsoft has been quietly backing away from its ambitious AI infrastructure plans. The company has canceled planned data centers that would have powered the next generation of AI systems. According to TD Cowen, Microsoft has abandoned facilities that would have boosted its computing power by roughly 14% - equivalent to the entire computing capacity of a major global tech hub like Tokyo. Microsoft has also decided to skip out on a $12 billion option for more data center capacity from cloud computing company Coreweave, according to Semafor. These retreats seem especially telling for a company that repeatedly claimed AI demand was "exceeding supply." Nadella himself hinted at the reality in a recent podcast, admitting "there will be overbuild" in data centers related to AI. Adding to Microsoft's challenges is a deteriorating relationship with OpenAI. According to The Information, Microsoft's AI chief Mustafa Suleyman has a dual mandate that reveals the company's growing uncertainty: maintain the OpenAI partnership while simultaneously putting Microsoft "on a path to self-sufficiency in AI so it won't have to rely indefinitely on OpenAI's technology." Microsoft is already developing its own family of AI models (internally called MAI) and testing models from competitors including Anthropic, xAI, DeepSeek and Meta as potential OpenAI replacements for Copilot. It has its work cutout for it with Copilot, which has struggled to gain meaningful traction in the market. A Gartner survey found few companies moving Copilot initiatives beyond initial testing, with "tangible business impact proving elusive" and implementation requiring "more effort than anticipated." One government IT executive described Copilot as "so far behind that it is frustrating to use." But Microsoft may not be alone in facing these challenges. There are growing signs that all AI tools might be struggling to find more users. According to the Fall 2024 Slack Workforce Index, AI adoption growth rates among U.S. workers have slowed to a mere percentage point gain over the last three months, compared to nearly double-digit gains in the same period a year earlier. A paper by Gartner said that CIOs were increasingly nervous about AI spending, with one Gartner analyst telling the UK tech publication The Register that 2025 could be the "year of the slide." As Microsoft celebrates its 50th anniversary, the company finds itself at a crossroads. Its AI strategy -- raising prices while forcing AI integration into products, developing competing models while maintaining its OpenAI partnership, and scaling back infrastructure while claiming unprecedented demand -- suggests a company trying to hedge its bets rather than confidently doubling down on the next technological revolution. For a tech giant that has thrived by repeatedly reinventing itself, Microsoft's contradictory approach to AI may be the clearest signal yet that even industry leaders aren't sure if the AI revolution will live up to its trillion-dollar hype.
[3]
Microsoft is turning 50. Is it ready for the next technological frontier?
A version of this article originally appeared in Quartz's members-only Weekend Brief newsletter. Quartz members get access to exclusive newsletters and more. Sign up here. In late 2022, Satya Nadella made what might be the defining bet of his career: pouring billions into OpenAI while restructuring Microsoft around artificial intelligence. At first, the move looked like strategic genius. While Google, Apple, and Meta scrambled to catch up in the AI race, Microsoft appeared to have secured the winning horse, giving it a commanding early lead. Wall Street rewarded this vision, adding over a trillion dollars to Microsoft's market cap. By early 2025, however, that vision has collided with a harsher reality. Microsoft now faces a perfect storm of challenges in its AI gambit: massive data center pullbacks, lagging stock performance relative to tech peers, growing tensions with OpenAI, and a market that may be showing some slow down in its interest in all things AI. For a company that has masterfully navigated every technological revolution of the past five decades, these warning signs suggest its biggest bet yet may be faltering. The stock market's verdict has been particularly harsh. Microsoft shares narrowly avoided their first eight-week losing streak since the 2008 financial crisis only through a last-minute rally on March 21, according to CNBC. Since reaching a closing high of $467.56 in July 2024, Microsoft is down about 16%. Even more telling, Microsoft is down 7% for the year while other AI-focused tech giants have surged, making it the only Magnificent 7 tech stock without a gain over the past year. Behind the scenes, Microsoft has been quietly backing away from its ambitious AI infrastructure plans. The company has canceled planned data centers that would have powered the next generation of AI systems. According to TD Cowen, Microsoft has abandoned facilities that would have boosted its computing power by roughly 14% - equivalent to the entire computing capacity of a major global tech hub like Tokyo. Microsoft has also decided to skip out on a $12 billion option for more data center capacity from cloud computing company Coreweave, according to Semafor. These retreats seem especially telling for a company that repeatedly claimed AI demand was "exceeding supply." Nadella himself hinted at the reality in a recent podcast, admitting "there will be overbuild" in data centers related to AI. Adding to Microsoft's challenges is a deteriorating relationship with OpenAI. According to The Information, Microsoft's AI chief Mustafa Suleyman has a dual mandate that reveals the company's growing uncertainty: maintain the OpenAI partnership while simultaneously putting Microsoft "on a path to self-sufficiency in AI so it won't have to rely indefinitely on OpenAI's technology." Microsoft is already developing its own family of AI models (internally called MAI) and testing models from competitors including Anthropic, xAI, DeepSeek and Meta as potential OpenAI replacements for Copilot. It has its work cutout for it with Copilot, which has struggled to gain meaningful traction in the market. A Gartner survey found few companies moving Copilot initiatives beyond initial testing, with "tangible business impact proving elusive" and implementation requiring "more effort than anticipated." One government IT executive described Copilot as "so far behind that it is frustrating to use." But Microsoft may not be alone in facing these challenges. There are growing signs that all AI tools might be struggling to find more users. According to the Fall 2024 Slack Workforce Index, AI adoption growth rates among U.S. workers have slowed to a mere percentage point gain over the last three months, compared to nearly double-digit gains in the same period a year earlier. A paper by Gartner said that CIOs were increasingly nervous about AI spending, with one Gartner analyst telling the UK tech publication The Register that 2025 could be the "year of the slide." As Microsoft celebrates its 50th anniversary, the company finds itself at a crossroads. Its AI strategy -- raising prices while forcing AI integration into products, developing competing models while maintaining its OpenAI partnership, and scaling back infrastructure while claiming unprecedented demand -- suggests a company trying to hedge its bets rather than confidently doubling down on the next technological revolution. For a tech giant that has thrived by repeatedly reinventing itself, Microsoft's contradictory approach to AI may be the clearest signal yet that even industry leaders aren't sure if the AI revolution will live up to its trillion-dollar hype.
[4]
Will Microsoft -- maker of Zune and Bing -- win tech's new big thing?
When Satya Nadella entered Microsoft's C-suite in 2014, the company wasn't one of the tech darlings dazzling Wall Street. After founder Bill Gates turned the CEO role over to Steve Ballmer in 2000 and until Ballmer stepped away in 2014, Microsoft's stock price basically followed the market. The company was still printing money thanks to its dominance in personal computing software. But it couldn't draw futurist headlines like those chasing companies that represented FAANG, a catchall acronym for Facebook, Apple, Amazon, Netflix and Google, the sexy tech stocks of the early 2010s. While Apple and Google seized the smartphone market, Microsoft fumbled its Windows-powered cellphone. As it revolutionized retail, Amazon also beat Microsoft to the punch on cloud computing with its debut of Amazon Web Services in 2002. Microsoft was resting on its laurels, even if those behind the scenes were feverishly trying to break into new markets with ultimately doomed products like the Zune. Enter Nadella, the engineer. Climbing through the ranks at Microsoft in various product divisions, Nadella had found a way at each stop to bring the company into a new digital age: take it to the cloud. As a concept, cloud computing is abstract. It took years to drag customers, both commercial and consumer, into Microsoft's cloud umbrella, Azure. But the bet paid off. And with the winnings, Nadella and others are pushing more chips each year into a technology better known than cloud computing but perhaps even less understood: artificial intelligence. From July 2024 through June 2025, the company projects it will have spent $80 billion on AI infrastructure, mostly by building data centers. That represents almost 33% of Microsoft's total revenue for 2024, which the company reported as $245 billion. Microsoft isn't all in, but it's still a big bet for a company worth $2.9 trillion. To the cloud You'd be hard-pressed to find someone who says "send that to me in a WordPerfect document." Nobody tracks their company budget in a Lotus 1-2-3 spreadsheet. Two applications that were ubiquitous for computer users in the 1980s are now completely lost to history thanks to Microsoft Office. Those Office products -- chiefly Word, PowerPoint and Excel -- once drove the Redmond-based tech giant. Under Nadella, cloud computing outstripped them all. When Nadella was named CEO, Office and the cloud were essentially tied in terms of revenue. Office brought in $24.3 billion in revenue. Microsoft's cloud computing division reported $21.7 billion in sales that year. Cloud computing is booming for Microsoft. Last year, Intelligent Cloud reported more than $100 billion in annual sales. Office's revenue was about half of that. Though tens of thousands of employees are underneath Nadella developing Microsoft's successful cloud products, it's Microsoft's chief who's been credited with turning around a company that continually failed to stay on the cutting edge of technology for more than a decade. Windows didn't make a dent in the smartphone market, now the domain of Apple's iOS and Google's Android operating systems. The ill-fated Zune didn't take down the iPod. And though MSN looked to be a contender as a search platform early on, the company lost interest in capturing that market before Google did. Though it's a success now, Microsoft was late in launching its cloud platform, Azure. Amazon Web Services had entered the arena in 2002, six years before Azure did. Amazon spent that time gobbling up market share. While Microsoft and others were growing cloud services slowly, Amazon Web Services was humming. Amazon still has a healthy lead in the cloud market, with about 30% of it, according to the Synergy Research Group. But Microsoft's share has climbed to 21%. After more than a decade of dragging customers to the cloud, Nadella and Microsoft are pulling them toward AI, a technology that's costly, unreliable and greedy, using vast amounts of energy and water, but potentially extraordinarily lucrative. General-purpose technology Tech companies have developed large language models and machine learning products for the past decade that fall under AI. It's technology that allows a robot vacuum to clean a house more efficiently and produces better predictive ads while you're browsing the internet. But the flashier products are in the zeitgeist now. Chatbots that can craft essays and image generators that produce uncanny pictures are all available to the public. The tech industry is scrambling to include AI -- or at least the term AI -- in new products, annual earnings calls and marketing efforts. Facebook parent company Meta injected AI chatbots into its social media platforms, while Expedia has an AI feature for travel planning and Google's search has been handed over to the technology. For about $1,000, you can even own the world's first AI-enabled grill from a company called Brisk It. Microsoft's biggest consumer-facing AI product has been Copilot, a complement to the company's Office products that can automate tasks. Behind the scenes, Microsoft plans to pour money into AI. In a regulatory filing from October, Microsoft said it has committed $13 billion in investments toward OpenAI, an AI research organization that develops chatbots and image generators. Microsoft has such a large investment in the ChatGPT maker that it reported a $683 million expense due to its equity stake. As Wall Street rides the roller coaster of AI hype, Microsoft claims it's chasing the technology almost altruistically. The company believes that AI is a general-purpose technology. "A single-purpose technology is a great advancement and helps a lot of people," said Mary Snapp, vice president of strategic initiatives for Microsoft, in an interview with The Seattle Times. "Like my electric sewing machine when I was growing up. Boy, I sewed a lot of clothes and it got me to the prom, but it didn't do anything else." But an example of general-purpose technology, she said, is electricity. It spawns innovation and boosts productivity. An ambassador for the company's policy and tech efforts, Snapp travels around the world trying to demystify AI and advocate for retraining workforces. She likens it to the government trying to drive social acceptance of electricity in rural areas in the 1930s to build the electric grid. "We needed people to know how to run electrical appliances at scale and in industrial settings," Snapp said. "We're going to need the same thing with artificial intelligence." AI in action In early March, Microsoft President Brad Smith was in Tanzania to see Microsoft's AI for Good Research Lab in the field. The technology's selling point is improved productivity and efficiency in any setting. So, how could it help conservation? The lab had been partnering with the Wild Nature Institute, a conservation group, and was working with the organization to track the East African country's giraffe population. "Turns out that AI is critical," Smith said in an interview with The Seattle Times. "Every giraffe is unique, so for decades, these scientists would go out into the wild and they would have these diagrams of the giraffes that were drawn. Now you take a photograph, AI crops it, and then it instantaneously matches that giraffe to the giraffe in the data set." Outside of Microsoft's research efforts, the company has already introduced its customers to AI. Deb Cupp, president of Microsoft's business operations across North America and South America, is in charge of an $80 billion products business that's now tasked with delivering AI to customers and educating them on the technology. "We spent time explaining what AI was and where the areas of opportunity actually were," she says. "We started to help customers think through whether they should try and create use cases, finding ways to fit in the technology. But the answer is actually the complete opposite." Renton-based Providence Health & Services said it's been working with the tech giant to identify use cases for AI. Health care has been moving to the digital world for the past 10 to 15 years, a move that Providence said has set it up for AI. Susan Huang, chief physician executive for health care giant Providence, said AI already has more buy-in than the organization's move to the cloud years ago. "AI is part of the colloquial dialogue whereas cloud-based services were somewhat niche," Huang said. "Whether you're a caregiver, doctor or nurse, everyone has an idea for how AI can be applied. And they're already using it on the outside and in their personal lives." It uses a lot of energy. The International Energy Agency said in a report last year that from 2022 to 2026, global electricity demand from data centers could double in part due to AI. The demand from data centers would be roughly equal to the entire electricity consumption of Japan. The average amount of electricity used in a traditional Google search is 0.3 watt-hours. For a ChatGPT request, it's about 2.9 watt-hours, the equivalent of running an LED light bulb for roughly 17 minutes. Essentially the company is looking in the margins for where it can cut back on energy and water consumption while tightening AI's belt. If the models and code can be more efficient, they'll use less energy with each request. AI's other issue is its tendency to hallucinate. Google's Gemini feature regularly spits back incorrect information, as it's drawing from unreliable sources across the internet. OpenAI's ChatGPT has made up facts and gets tricked by word problems. Grok, the AI platform for X, routinely aggregates trendy jokes and reports them back as news. A recent study from the Columbia Journalism Review found that AI search tools were "generally bad at declining to answer questions they couldn't answer accurately, offering incorrect or speculative answers instead." Former Microsoft Chief Technology Officer Nathan Myrhvold believes it will take a miracle or maybe five for AI to reach human-level understanding. At Geekwire's Microsoft@50 anniversary event March 20, Myrhvold expressed optimism for AI. But the feature it lacks is the ability to take abstract concepts and find meaning, as humans can. It can't reason in the abstract as humans do until a miracle happens. "And that could happen tomorrow. Or maybe it already happened tonight and they just haven't told us," Myrhvold said. "Or it could take another 10 years." For now it's about getting a return on investment and satisfying Wall Street. How Microsoft makes money through AI is a bit murky because it's injecting the technology throughout its revenue segments. But Nadella gave analysts a good sales pitch in January, during the company's latest earnings call. The company said its AI business has a revenue run rate, effectively a projection of revenue for the next year, of $13 billion. On the same day, Microsoft revealed it spent $22.6 billion in a single quarter on AI infrastructure. Nadella and the company deem those rising expenditures necessary. "As AI becomes more efficient and accessible," Nadella said, "we will see exponentially more demand."
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As Microsoft celebrates its 50th anniversary, the company faces both opportunities and obstacles in its ambitious AI strategy, led by CEO Satya Nadella. This story explores Microsoft's journey from cloud computing success to its current focus on artificial intelligence, highlighting recent setbacks and market uncertainties.
Microsoft, under the leadership of CEO Satya Nadella, has transformed itself from a company struggling to keep up with tech giants to a leader in cloud computing. When Nadella took the helm in 2014, Microsoft was lagging behind its competitors in emerging technologies 1. However, Nadella's focus on cloud computing, particularly through the Azure platform, has paid off significantly. In 2024, Microsoft's Intelligent Cloud division reported over $100 billion in annual sales, more than double the revenue from its once-dominant Office products 4.
Building on its cloud success, Microsoft is now making a substantial bet on artificial intelligence. The company projects spending $80 billion on AI infrastructure from July 2024 through June 2025, representing nearly 33% of its total 2024 revenue 1. This investment includes a $13 billion commitment to OpenAI, the organization behind ChatGPT 4.
Despite initial optimism, Microsoft's AI strategy has faced several challenges:
Stock Performance: Microsoft's shares have underperformed compared to other AI-focused tech giants, experiencing a 16% decline since July 2024 2.
Infrastructure Pullback: The company has canceled planned data centers that would have increased its computing power by 14%, equivalent to the capacity of a major tech hub 2.
OpenAI Partnership Tensions: Reports suggest a deteriorating relationship with OpenAI, prompting Microsoft to develop its own AI models and explore alternatives 3.
Copilot Struggles: Microsoft's AI-powered Copilot has faced adoption challenges, with a Gartner survey indicating that few companies are moving beyond initial testing phases 3.
The broader AI market is showing signs of slowing growth:
As it celebrates its 50th anniversary, Microsoft appears to be hedging its bets on AI:
Microsoft's approach to AI reflects the uncertainty surrounding the technology's future. As Mary Snapp, VP of Strategic Initiatives at Microsoft, states, the company views AI as a "general-purpose technology" with broad applications 4. However, the company's recent actions suggest a more cautious stance than its initial all-in approach.
As the tech industry watches closely, Microsoft's success or failure in navigating the AI landscape could set the tone for the next era of technological innovation. The company that has reinvented itself multiple times over five decades now faces perhaps its most significant challenge yet in realizing the potential of artificial intelligence.
Reference
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