dpQuick Read
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Microsoft stock fell 24% this year while the S&P 500 gained 7%, trailing rival Alphabet by 133 percentage points over five years.
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OpenAI shifted from Microsoft’s strategic ally to a direct competitor, gutting the AI edge its Azure cloud and Copilot products depended on.
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Apple’s 2 billion devices give it a hardware foundation Microsoft lacks, leaving Microsoft dependent on legacy Windows and Office for AI deployment.
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AI was supposed to be a tide that lifted all ships within the sector. Microsoft (NASDAQ: MSFT) is the leading exception. So far this year, the stock is down 24%. The market is 7% higher, and the market’s long-term trade is just bad or worse. Over the last five years, the stock has risen 38% while the S&P has risen 72%. The stock of rival Alphabet (NASDAQ: GOOG) is up 171% over that period.
What is wrong is that Microsoft is fairly simple and shows up based on a quick analysis. If there is a biggest loser in the AI sector, it is the Bill Gates-founded company. It appeared to have an industry lead when it made a series of investments in OpenAI, which at the time was the clear sector leader. However, over time, OpenAI has become increasingly independent and is now more of a competitor than an ally.
Suppose the relationship between the two companies had gone well? Microsoft would have had an edge in the AI capabilities of its Azure cloud business. Its Copilot AI product would not be such a disaster.
And, Copilot has been outflanked by Google, Anthropic, and OpenAI. The Wall Street Journal pointed out, “After leaning on its partnership with OpenAI, Microsoft is playing catch-up in the chatbot race. But data shows that it is losing ground with users.”
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Although not universally accepted, there is a widely held view that the winners and losers in the AI business are already set, and that there is no such thing as catching up.
Microsoft has even lost out to Apple (NASDAQ: AAPL) in AI. At least Apple has over two billion devices it can target with AI products, most of which are licensed from Google. Microsoft does not have a hardware foundation nearly that large.
What Microsoft does have is its installed Windows and Office. Leveraging that has not been successful.
Microsoft now has to argue that AI is not important. Rather, its legacy products are. However, even its Azure cloud computing business faltered in the most recent quarter, presumably, a strong AI integration would have improved those numbers.
What Wall St. sees in Microsoft is a company that has lost what may be the largest tech race of the last half-century
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