AI drives a cloud resurgence, but it’s costing a lot

They don’t know your role and preferences, what information you use, what you do and don’t have access to. These days, it seems like just about everyone is experimenting with it, right? What the early providers in the space have done is really exciting and it’s genuinely super useful for consumers. Other cloud ChatGPT providers have not even delivered on their first server processors yet,” said Selipsky. It is interesting that Nadella should reinforce MSFT’s commitment to prioritize security above all else. On July 18, cybersecurity firm CrowdStrike released a flawed software update, crashing millions of Windows devices.

As a result, Spirent uses AI for test data within its products to help with customer support and internal productivity, says Bostrom. For example, an employee needing to create a new sales pitch while in, say, Salesforce, can press a button and relevant content from the company’s SharePoint repository would be retrieved and packaged up. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.

Not only have flourishing developments of social media changed how people communicate with each other but they have also made social media a key marketing channel that companies rely on to grow their business. Especially during the COVID-19 pandemic, the practice of keeping person-to-person contact to a minimum accelerated the popularity of social media, making them a major communication channel for commercial activities. Small and midsize businesses (SMB) or farmers lack the resources to keep up with the rapid emergence of different types of social media.

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GS expects 14% revenue growth for the first quarter, inline with the consensus, and sees EPS of $3.14, slightly above the consensus. In mid-September, MSFT announced a new $60 billion stock buyback program, aligning with its largest repurchase authorization to date. The new buyback authorization, which represents nearly 2% of MSFT’s market cap of $3.1 trillion, has no expiration date and replaces a $60 billion buyback program announced in 2021. During its fourth-quarter earnings call, Microsoft addressed the elephant in the room–the raging industry debate about the monetization of its significant investments in generative AI.

• Later the same day, decentralized exchange dYdX said it cut 35% of its staff.
• With the growing demand for generative AI applications for use in just about every industry, cloud computing providers have an opportunity to help businesses develop and scale their applications.
• “So critically, other providers have launched tools without data privacy and security capabilities which virtually every enterprise requires.
• In June, for example, the Ukrainian authorities arrested people they suspected of cybercrime who were allegedly acting on behalf of Russian clients.

Among the tier-two cloud providers, those with the highest year over year growth rates were Oracle, Huawei, Snowflake and MongoDB. AWS generated $26.3 billion in total revenue during second quarter 2024, representing an increase of 19 percent year over year. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Goldman Sachs (GS) maintains a Buy rating but reduced the price target on Microsoft to $500 from $515.

Is Microsoft Stock Heading To A $4 Trillion Valuation? Taking Cues From Buyback And Dividend Hike Plans

But others such as Barney Pell, venture partner at Radical Ventures, are more optimistic. But he sees the proper focus not on artificial general intelligence but humans plus AI — and also neural networks plus symbolic systems, not just gen AI. Constellation Insights Editor in Chief Larry Dignan says generative and agentic AI are starting to transform the enterprise software business model. “In the next year or so, the whole way you buy software is going to change,” he said. Maria Korolov is an award-winning technology journalist covering AI and cybersecurity.

Microsoft said that nearly 50% of its capex went towards infrastructure needs, like the land and data center buildout, while the rest was decided by “demand signals.” CPUs or GPus will be bought only based on these demand signals. Azure AI growth, and recurring customers for Microsoft 365 Copilot are some of the demand signals that decide the trajectory of more than 50% of Microsoft’s capital spending toward cloud and AI-related investments. AWS remains the dominant worldwide cloud services market leader as of Q by winning 32 percent share. Alibaba subsidiary, Alibaba Cloud, is the Chinese-based company’s cloud computing business. The cloud company has won between 4 percent to 6 percent global market share over the past several years.

In February, Meta authorized an additional $50 billion in share repurchases, which represented 5% of its $1 trillion market cap at the time. Shareholder return initiatives are not new for Microsoft, which returned more than $34 billion to shareholders via dividends and buybacks in fiscal 2024. The company has repurchased shares consistently over the last two decades.

Enterprise spending on cloud companies’ infrastructure services was well over $76 billion during the first quarter of 2024. This represents an increase of $13.5 billion or 21 percent year over year compared to Q1 2023. This compares very favorably with the sector’s ten consecutive years of dividend payment and one year of dividend growth. Considering that Microsoft has consistently paid and increased dividends, there isn’t much in the way of surprises that would significantly impact MSFT stock behavior—unless Microsoft were to halt or cut its dividend payments. Such a move could serve as a notable negative catalyst, though the probability of that occurring is extremely low.

Take business process outsourcing company TaskUs, which is seeing the need for more infrastructure investment as it scales up its gen AI deployments. The challenge isn’t mind-blowing, says its CIO Chandra Venkataramani, but it does mean the company has to be careful about keeping costs under control. “We don’t want to get carried away with technology and go crazy with it,” he says.

So now you have a consistent level of protection across all of your GenAI development activities. We’d like to answer questions quickly with natural language interactions. You can easily chat, generate content, take actions—it’s all informed by understanding your systems, your data repositories, your operations. “So critically, other providers have launched tools without data privacy and security capabilities which virtually every enterprise requires. Many CIOs actually ban the use of a lot of the most popular AI chat systems inside their organization,” said Selipsky.

Analysts expect $140 billion in incremental revenue from AI services for MSFT by 2027. Adding this to the fiscal 2024 revenue of $245 billion, Microsoft has the potential to reach a $4 trillion valuation by 2027 based on its five-year average price-to-sales ratio of 10.6x, representing 30% upside from current levels. Not to forget the long-term dividends and share buybacks aws chat bot that could further unlock value for investors. Atop the battle for AI dominance, the top tech majors are also actively competing on buyback and dividend programs, which bodes well for shareholders. In May, Apple announced the biggest-ever $110 billion stock buyback authorization, following Google parent Alphabet’s $70 billion buyback authorization announcement in April.

Once the data was organized, moving it to where it was needed was another challenge, he says. According to Deloitte’s Q3 state of generative AI report, 75% of organizations have increased spending on data lifecycle management due to gen AI. Google and Microsoft are also rolling out gen AI functionality in their productivity platforms, as is Salesforce, and most other enterprise vendors. There might be an extra cost for the new functionality, though, but the vendors are the ones dealing with any potential infrastructure challenges.

“You need to be nimble enough to switch as it gets upgraded,” Thota says. Also in the Flexential survey, 43% of companies are seeing bandwidth shortages, and 34% are having problems scaling data center space and power to meet AI workload requirements. Other reported problems include unreliable connections and excessive latency. Only 18% of companies report no issues with their AI applications or workloads over the past 12 months. So it makes sense that 2023 was a year of AI pilots and proofs of concept, says Bharath Thota, partner in the digital and analytics practice at business consultancy, Kearney. And this year has been the year when companies have tried to scale these pilots up.

“If there are people who just don’t work well in that environment and don’t want to, that’s okay, there are other companies around,” said Garman. Our community ChatGPT App is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

The newest version of Sonnet is one of the best-performing AI models on coding charts, exhibiting wide-ranging improvements for industry benchmarks. It is currently the top model on the SWE-bench chart, solving 49% of the verified dataset, which is 500 real-world GitHub issues. MantaGO is being used by more than 800 companies spanning across e-commerce, tourism, consultation, and government sectors. For example, Farm Life, an educational farm in operation for longer than a decade, uses MantaGO to respond to all sorts of questions that are repetitive so that first-time visitors can easily get access to farm information.

Is MSFT Stock Heading To A $4 Trillion Market Value?

“We knew we wanted to embed AI in our existing applications,” he adds. “Salesforce and others have an AI module you can add on, but we wanted to be more specific for our use case.” That meant that the company had to do some serious infrastructure work. The company still has that in place, with 130-plus licenses available to its internal users, who use the standard chat interface, and there are no API costs or integrations required. “You’re just using their application and paying for the user license,” he says.

Microsoft is definitely making progress and AI investments are already generating additional business for Microsoft, as can be seen by the strong signups for Azure AI and Microsoft 365 Copilot. Microsoft said that the expansion of its data center footprint targeting investments across four continents aimed to create long-term assets globally to drive growth for the next decade and beyond. Fiscal 2025 capex is expected to be higher vs. fiscal 2024, and tied to demand signals and adoption of its AI-based services. MSFT plans to be more disciplined to keep its opex growth in the single digit for fiscal 2025 to somewhat compensate for the higher capex. In July, Microsoft noted that its revenue from Azure and other cloud services grew 29% year over year during the fourth quarter. It caught the market off-guard as Azure growth numbers have never missed estimates since 2022.

Why your company is struggling to scale up generative AI

However, the new buyback authorization does signal that the tech giant remains committed to robust free cash flow generation, despite its elevated AI-driven investments. Microsoft has more than 60,000 Azure AI customers, up nearly 60% year over year with the average spend per customer continuing to grow. The lack of visibility into cloud consumption trends also poses a problem. The Azure consumption business (in which businesses only pay for the resources and services consumed), which includes AI, has historically grown faster than the per user business.

Every year, the new quarterly dividend increase tops the year-ago dividend increase by a penny–a pattern that can be observed since November 2021. You can foun additiona information about ai customer service and artificial intelligence and NLP. For example, the upcoming new dividend is $0.83 per share, a 8-cent increase from $0.75 per share in 2023, which is a 7-cent increase from $0.68 in 2022, and this represents a 6-cent increase from $0.62 in 2021. And there’s also the question of skills gaps or staffing shortages related to AI infrastructure management.

She also writes science fiction novels, edits a sci-fi and fantasy magazine, and hosts a YouTube show. The other main AI compute use is that of inference, when the trained AI model is used to actually answer questions. “Unless you’ve got an ability to ask your customers to wait for the model to respond, inference becomes a problem,” says Sharma. These are common for RAG, a type of gen AI strategy that improves accuracy and timeliness, and reduces hallucinations while avoiding the issue of having to train or fine-tune an AI on sensitive or proprietary data. As a remedy, there are regional deployment options, so, for example, an AWS data center in Singapore might support users in China.

Customers of every size, every industry, every region—organizations you might have never imagined would rely on the cloud for innovating in AWS. … Enterprises, startups, small and medium sized businesses, universities, community colleges, government agencies, nonprofit—the cloud is for anyone. AWS CEO also touted his company’s most “powerful” processor ever made, Graviton 4 as well as the “fastest object storage” offering in cloud, S3 Express One Zone. Garman said under the three-day policy, “we didn’t really accomplish anything, like we didn’t get to work together and learn from each other,” because people may be in offices on different days. “I know not everyone is,” he said, noting it’s too hard to accomplish the company’s goals with only the mandatory current three days of in-office work. Some employees who had not been previously compliant were told they were “voluntarily resigning” and were locked out of company systems.

In Q1 2024, the tech giant captured 11 percent share of the worldwide cloud market. Alibaba continues to capture about 4 percent share of the global cloud services market as of first quarter 2024. AWS, Google Cloud and Microsoft Azure—combined—accounted for a whopping 67 percent share of the $76 billion global cloud services market in Q1 2024, according to new data from IT market research firm Synergy. Here’s the exact global cloud market share figures for AWS, Alibaba, Google Cloud, Microsoft and Salesforce for first quarter 2024 as the market increased to $76 billion. Xbox content and services revenue increased 61% during the fourth quarter, of which 58 points were attributed to Activision.

We’ve been actively participating, and a lot of groups have come together, to discuss responsible AI issues. Earlier this year, I joined [U.S.] President [Joe] Biden and other leaders. We’ve made a series of voluntary commitments promoting safe, secure and transparent development of AI technology. The yield may look small, but that is because of the strong rally in the MSFT stock over the past years.

It is now up to investors to take a deep, long look and decide if they are comfortable with the answers. Copilot for Microsoft 365 is gaining solid traction; customers grew more than 60% quarter-over-quarter, while the number of people who used Copilot daily at work doubled. The number of customers with more than 10,000 seats more than doubled quarter over quarter, including Capital Group, Disney, Dow, Kyndryl, Novartis and EY, which alone is expected to deploy Copilot to 150,000 of its employees. Based on the takeaways from the July earnings call, there appears to be no slowdown in demand for Azure consumption. The quote from Microsoft’s CFO Amy Hood, “Azure consumption business continues to grow faster than total Azure.” has a nice reassuring ring to it.