Microsoft’s enormous spending on generative artificial intelligence has been closely watched by investors for some time, but the recent stock market frenzy over DeepSeek will intensify the focus.
Analysts surveyed by FactSet expect Microsoft will post earnings of $3.11 a share from revenue of $68.9 billion.
The company is scheduled to report second-quarter financial results after the close on Wednesday. The consensus call among analysts surveyed by FactSet is for earnings of $3.11 a share from revenue of $68.9 billion, compared with $2.93 a share and revenue of $62 billion in the same period a year earlier.
All that could amount to a sideshow. Microsoft was a part of a wider group of tech stocks that dropped on Monday as investors reacted to both the competitive risk from the Chinese artificial intelligence start-up DeepSeek, and to indications that DeepSeek has spent less than American AI companies on similar tech.
Viral social-media posts said over the weekend that DeepSeek had developed an AI model similar to ChatGPT for only $5.6 million, which would be vastly lower than the amounts companies such as Microsoft have spent, and continue to spend, on AI. A closer look at what DeepSeek has actually said about its spending makes it clear that the $5.6 million doesn’t tell the whole story.
Still, that figure reinvigorates an important question for Microsoft shareholders: Is the company spending too much?
Microsoft said in a blog post on Jan. 3 that it is on track to invest approximately $80 billion in 2025 “to build out AI-enabled datacenters to train AI models and deploy AI and cloud-based applications around the world.” The company also reported capital expenditures of $14.9 billion in its first quarter, and Wall Street is expecting that to rise to $15.6 billion in the second quarter.
Microsoft isn’t the only big tech company to recently spell out spending plans. Meta Platforms Chief Executive Mark Zuckerberg said on Jan. 24 that Meta is planning to$60 billion to $65 billionin capital expenditures this year while significantly increasing the size of the company’s AI teams.
As a result, investors are eager to hear what Microsoft and its rivals have to say about capex. Some analysts don’t think the DeepSeek developments will change Big Tech’s plans.
“DeepSeek does not disrupt the $2 trillion of AI Cap-Ex set for the next 3 years with Nvidia, Microsoft, Google, Amazon, Palantir,ServiceNow, Salesforce, Oracle, TSMC, and others front and center poised to benefit,” Wedbush Securities analyst Dan Ives wrote in a research note on Tuesday.
There is also the possibility that Microsoft could replicate the lower-cost AI models that DeepSeek appears to have created.
“If DeepSeek is capable of generating efficiencies at lower scale, this would bode well for Microsoft’s ability to continue lowering the cost of AI computing and drive scale on capital expenditures, via its own operational efforts,” BofA Securities analyst Brad Sills wrote in a note on Tuesday.
TD Cowen analyst Derrick Wood told Barron’s that the best outcome for Microsoft investors would be that Chief Executive Satya Nadella says on the earnings call that “after this $80 billion spend this fiscal year, we’re going to see a big moderation in capex growth, and we think with new developments from LLM architectures, this could drive higher ROI,” or return on investment.
Microsoft’s heavy spending isn’t new, but the DeepSeek narrative just changed the way shareholders are going to look at earnings, for better or worse.
