Author | Cao Anxun
Editor | Zhang Xiaoling
The popularity of Chat GPT has brought OpenAI, the company behind it, into the spotlight, and Microsoft, as a major shareholder of OpenAI, has once again taken center stage.
On July 25th, Microsoft released its earnings report for the fourth quarter of the 2023 fiscal year. However, this so-called &#34;most important earnings report in Microsoft's history&#34; performed mediocrely. Not only did AI's contribution to revenue hardly show, but PC and cloud business growth remained weak, lagging behind its &#34;arch-rival&#34; Google, which saw across-the-board growth.
However, even before AI started generating revenue, the capital market had already changed its attitude towards Microsoft. Thanks to the popularity of Chat GPT, Microsoft's stock price has reached historic highs this year, rising by 44.39% from the beginning of the year to July 26th. Its latest market value is $2.61 trillion, approaching that of Apple, the world's most valuable company.
This is just the beginning of AI capital enrichment. Global tech giants such as Microsoft, Google, Amazon, Meta, and Alibaba are all competing to invest in AI, and this trend is irreversible.
Based on its forward-looking layout in AI, Microsoft may become another technology company with a market value exceeding $3 trillion, following in the footsteps of Apple.
<h2>Lackluster Earnings Report</h2>
Microsoft's earnings report shows that its revenue for the fourth quarter was $56.2 billion, an 8% year-on-year increase. Although it exceeded market expectations, it fell short of the double-digit growth in the same period last year. Its net profit was $20.1 billion, a 20% year-on-year increase, which is still impressive.
Looking at specific business segments, Microsoft's productivity and business processes division performed steadily, achieving $18.29 billion in revenue, a 10% year-on-year increase.
However, the growth of its cloud services has been slowing down quarter by quarter. Microsoft's intelligent cloud business revenue reached $23.99 billion, an 8% decrease compared to the previous quarter. Among them, the core Azure cloud service revenue growth rate also slowed down to 26%, whereas a year ago, Azure's revenue growth rate had exceeded 40% for four consecutive quarters.
In addition, like other PC manufacturers, Microsoft's personal computer (PC) business continued to decline, with a 4% year-on-year decrease in revenue for the fourth quarter, amounting to $13.9 billion. Specifically, revenue from the Windows operating system and hardware devices declined significantly, with a 12% and 20% year-on-year decrease, respectively.
Therefore, overall, the impact of AI on Microsoft's revenue has not yet been evident, and revolutionary innovation has not brought about revolutionary income.
However, investments related to AI are still increasing significantly.
Microsoft's capital expenditure for the fourth quarter increased by 30% year-on-year, reaching a record $8.9 billion. Amy Hood, Microsoft's Chief Financial Officer, stated that this was due to the establishment of new data centers to support artificial intelligence.
More disappointing is that Microsoft's performance will continue to be weak in the short term.
Microsoft expects that the Azure business will continue to grow sluggishly in the first quarter of the 2024 fiscal year, with a revenue growth rate of 25% to 26%.
Amy Hood stated at the earnings conference that Microsoft's revenue for the first quarter of the 2024 fiscal year is expected to be between $53.8 billion and $54.8 billion. This outlook is lower than expected by the market and is not as good as the latest quarterly performance.
As for when AI will generate revenue, Amy Hood stated that the AI tool Copilot is not yet ready for full release. Microsoft's AI service revenue will gradually increase with the expansion of Azure and the full release of Copilot. It is expected to generate real revenue in the second half of the 2024 fiscal year (first half of the calendar year 2024).
TF Securities stated that Microsoft's performance is still affected by foreign exchange and is facing headwinds in terms of growth. However, with the retreat of macro headwinds, the shift in monetary policy, the gradual introduction of AI products, and optimization of cost structure, it is expected that the company's fundamentals will reverse in the second half of the year.
In contrast, Google, Microsoft's &#34;arch-rival&#34; that released its quarterly earnings report on the same day, achieved positive performance across the board. Alphabet, Google's parent company, reported revenue of $74.6 billion in the second quarter, a year-on-year increase of 7%, and a net profit of $18.4 billion, a year-on-year increase of 15%.
Among them, the core advertising business revenue reversed the decline of the previous two quarters, reaching $58.14 billion, a year-on-year increase of 3%, returning to a growth trajectory. The cloud business showed strong growth, with revenue increasing by 28% year-on-year to $8.031 billion, achieving two consecutive profitable quarters. After the earnings report was released, Google's stock price rose nearly 7% in after-hours trading.
<h2>The Magic of Capital</h2>
Affected by the low performance expectations, Microsoft's stock price fell by about 4.15% after the earnings conference.
However, the trend is clear. It is undeniable that the AI wave is surging and reshaping various industries. Although the AI concept has receded recently, everyone has been swept along by it and moved forward.
This brings unlimited capital imagination, which is first reflected in NVIDIA and Microsoft. NVIDIA has surpassed its old rivals Intel and AMD to become the leader in AI computing power. Its stock price has doubled this year, reaching 11.3 trillion yuan. Although it has not contributed to performance, Microsoft has also tasted the sweetness brought by AI.
Under the favor of the capital market, Microsoft's stock price has risen by 44.39% since the beginning of this year, reaching a historical high of $360.
As of July 26th, Microsoft's market value has reached $2.61 trillion, closely following Apple, the company with the highest market value in the world (with the latest stock price of $3.05 trillion).
In this way, with the support of Chat GPT, the first-generation tech giant Microsoft once again stands at the forefront of the era and occupies the C position in the capital market.
Morgan Stanley analyst Keith Weiss stated in early July that the AI boom will propel Microsoft to join the $3 trillion market cap club, following in the footsteps of Apple. According to Weiss, Microsoft is the large software company most likely to benefit from the growth of AI.
Wedbush analyst Dan Ives believes that the AI market will reach $800 billion in the next decade, and Microsoft is expected to stand out and achieve a stock price increase. Microsoft could reach a market cap of $3 trillion in early 2024.
This also means that with its early AI deployment, Microsoft has the potential to become the second publicly traded company in the world to surpass a $3 trillion market cap, following Apple.
This is Microsoft's capital frenzy and a revolutionary trend.
In fact, as the AI boom continues to rise, major global technology giants are all investing in AI. In addition to Microsoft, in recent years, companies such as Google, Amazon, Meta, Apple, NVIDIA, Intel, AND, and Baidu, both domestic and international, have been investing funds and technology to compete for dominance in areas such as data, algorithms, and chips.
After the Chat GPT became popular, this trend reached its peak. Tencent, Baidu, Alibaba, Meta, Huawei, iFlytek, and others have successively entered the AI large model race in the first half of this year, igniting the &#34;thousand-model battle.&#34; During the 7th World Intelligence Conference in May, internet giants such as Robin Li, Zhou Hongyi, Liu Qingfeng, and Wang Jian all chose to give speeches with large models as the theme.
In China, large-scale models have become the entry point for AI monetization.
CASC Securities stated that the &#34;large models + office&#34; business model will be the core application scenario in this wave of AIGC, and it may be the first to realize the value of AI.
Looking ahead, this AI arms race has just begun, and Microsoft, Google, and other giants have recently expressed their intention to increase investment in AI.
Amy Hood stated that Microsoft's capital expenditure will continue to increase on a quarterly basis in the new fiscal year, mainly for data centers, CPU chips, GPU chips, and network devices.
Ruth Porat, CFO of Google, also stated that Google's capital expenditure will increase this year, mainly to increase investment in AI and technological infrastructure. Amazon also announced last month that it will invest $100 million to establish a Generative AI Innovation Center to build and deploy generative AI solutions.
Zhongtai Securities predicts that with the emergence of large-scale models and positive signals from the policy side, application transformation is expected to accelerate, benefiting areas such as autonomous driving, finance, design and industrial software, and network security.
The industry's landscape has already begun, and the global competition for AI is underway. It can be foreseen that with the monetization of AI investments, technology giants will create more waves in the capital market and unleash a wave of technological revolution worldwide, reshaping the industry landscape.

Microsoft is sprinting towards a $30 trillion market cap.