Microsoft (MSFT) shares are trading lower after the tech giant’s cloud revenue missed, overshadowing its earnings beat. The earnings report comes just after China’s DeepSeek announced a new model raising concerns about US companies’ ability to compete.
KeyBanc Capital Markets equity research analyst Jackson Ader joins Morning Brief with Seana Smith and Brad Smith to discuss what Microsoft’s results signal about the artificial intelligence (AI) landscape.
“Microsoft continues to kind of lead the way on [capital expenditure] CapEx spend,” Ader says, adding, “They’re a $3 trillion-plus company, so they’ve got cash to spare.”
Microsoft’s capital spending hit $22.6 billion during the fiscal second quarter. “They expect the numbers in third quarter and fourth quarter to be in line with that and then probably grow next year,” Ader says, noting that the hefty spending plans squash any concerns about Big Tech pulling back on AI investments.
The analyst explains that part of what’s driving Big Tech’s massive AI spending is the “uncertainty in the amount of compute” needed for the rapidly evolving tech.
“The AI version of the cloud looks a little bit more like the internet, where we think we’re going to use a ton of it, but we’re not really sure how much we are going to use,” Ader explains. “That added uncertainty means that you have to spend a lot of money without predetermined ROI, and without [a] predetermined total cost of ownership coming down like we had in cloud 1.0 creates a little bit of extra risk.”
When asked about DeepSeek’s advancements and what it means for other AI players like Microsoft, Ader says the Chinese AI startup’s breakthroughs may actually benefit Microsoft.
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This post was written by Naomi Buchanan.