The earnings report comes amid heightened scrutiny over Microsoft's significant investments in AI capabilities, especially following the announcement of a competitive AI model by Chinese company DeepSeek. This new model, which appears to rival US counterparts at a lower training cost, has intensified concerns about AI competition. The announcement contributed to a broader selloff in tech stocks, reducing US companies' market caps by $1 trillion. EMARKETER's Jeremy Goldman noted that while Microsoft's quarter was satisfactory, investors expect more from a company heavily investing in AI, especially with emerging competition from unexpected players like DeepSeek.
Key takeaways:
- Microsoft's AI and cloud computing sales results were lower than analysts expected, with Azure and other cloud computing sales growing 31% in fiscal Q2.
- Microsoft's AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year, according to CEO Satya Nadella.
- Microsoft's stock was affected by the announcement of DeepSeek's AI model, which appears comparable to US rivals but costs less to train.
- Investors are concerned about the returns on Microsoft's significant investments in AI, especially in light of competition from unexpected players like DeepSeek.