Who can forget Microsoft's golden era? Back then, CEO Satya Nadella was widely regarded as the most visionary leader in the tech industry. The late 2022 debut of ChatGPT was a watershed moment. It was Nadella's decisive move to invest in OpenAI that catapulted Microsoft to the forefront of the AI wave. Top-tier AI models were set for deep integration into Microsoft's software ecosystem and exclusive availability through its own cloud platform.
However, the recent cooling of relations between the two companies has dimmed the once-celebrated brilliance of Nadella's foresight. Microsoft has now invested in the AI firm Anthropic and plans to integrate its technological capabilities into its own product line. Meanwhile, OpenAI, with its immense and urgent demand for computing power, has begun collaborating with Oracle, Google under Alphabet Inc., and Amazon.
This "spreading the bets" strategy in the AI domain, while diversifying risk, ultimately proves that Microsoft's first-mover advantage has been exhausted. The AI halo that once helped double Microsoft's market capitalization has now faded. Since its stock price peaked last October, Microsoft's shares have fallen by approximately 11%. Up until the close on January 28th, its stock had been trading sideways throughout 2026.
Wall Street had hoped Microsoft's quarterly earnings would serve as a catalyst to boost the stock price, but those hopes were dashed. Microsoft's shares plummeted as much as 8.1% in after-hours trading, a direct result of its capital expenditures exceeding analysts' already lofty expectations.
The data showed the company's actual expenditure for the quarter was $37.5 billion, against a market consensus of $36.2 billion. Although Microsoft's total sales surpassed expectations and its profit grew by nearly a quarter compared to the same period last year, this was insufficient to offset the negative impact of the higher-than-expected capital spending. It is important to note that this profit figure does not account for the $7.6 billion impact related to its investment in OpenAI on its balance sheet. As Morgan Stanley analyst Keith Weiss stated bluntly during the earnings call, "There are two core headaches: one, capital expenditure is moving faster than expected, and two, the growth momentum of Microsoft's cloud service Azure might be weaker than anticipated." In other words, the biggest question on investors' minds is: when will the substantial cash investments translate into tangible returns?
The thorny issue of return on investment not only troubles Microsoft but also pressures all leading AI enterprises. As the competitive landscape of the AI industry shifts, the pressure on Nadella intensifies. By 2026, the competitive dynamics have clearly changed: Google is making significant inroads in consumer applications with its Gemini model, further bolstered by the supply and cost advantages of its in-house developed chips. Simultaneously, Anthropic's code-generation capabilities are among the industry's best, driving transformation in software engineering. The company's AI assistant, Cowork, has finally become the capable tool long promised by AI proponents, though some still view it as a potential risk to be wary of. In fact, according to The Information, Microsoft's own engineers are perplexed as to why Cowork outperforms Microsoft's proprietary AI tools in manipulating Excel and PowerPoint.
Whatever the reason, Microsoft, which holds the strong cards of enterprise users and GitHub, now finds itself under scrutiny, accused of letting the value of its key assets erode. However, many of those now criticizing Microsoft were once critics of Google. Not long ago, analysts and commentators were proclaiming that OpenAI had surpassed Google's AI research unit DeepMind and predicting that Google's entire business model was becoming obsolete.
We can now see that Google's initial stumble was merely a temporary lag, a consequence of the tech giant's bureaucratic layers and lack of urgency. The company soon sounded the alarm and, with a startup-like agility, pushed to launch its own AI tools. Today, Google has become the benchmark in the AI field, the target every competitor aims to surpass. This serves as a crucial lesson for Microsoft. If it wishes to regain its edge and prove it remains a force to be reckoned with, it must emulate Google's path to breaking the deadlock.
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