Microsoft's decline in value over the last year is not surprising, but whether or not it was deserved is another thing entirely. Similar to their peers, a lot of money has been spent developing their AI infrastructure. Unlike them, they have been punished for that spending. It is my belief that this punishment was not warranted, at least not when their peers have avoided the same fate.
I agree with the sentiment that AI spending is too high. A lot of businesses are going all-in and trying to lead in an industry that is still struggling to find great sources of income at the end of the pipeline. There is significant risk in allocating so much cash to something that has yet to prove its ROI is actually there, especially on the software front. A lot of people like to think that AI is a surefire bet that will fundamentally change everything, but we've been hearing that for years and the actual avenues of change have been quite narrow (AI image/video gen, coding assistants, and general chat being the three primary ones).
That all being said, Microsoft's capex into AI is not unprecedented nor unwarranted. They stand to benefit in the short-term regardless of long-term questions I have on AI's future. They exist in a space where they can profit both off software and infrastructure. This allows them to control multiple points of the AI pipeline similar to their FAANG peers. While the hype is alive, Microsoft will likely keep up with the industry and make just as much bank as everyone else in their sector. A return toward their previous highs last year is perfectly reasonable until AI hype dies down.
Besides AI, they are still a diverse company with plenty of alternative and successful means of making money, and they have demonstrated that less profitable ventures (like Xbox) are important to them and they are willing to take action to course correct when needed. While their growth has been below their high expectations, I still believe it is good enough to make its year-long dip a buying opportunity instead of a deserved correction.
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