Will Microsoft stops falling? And Where?

The Fall.

Did you notice that Microsoft has begun falling, after peaking on 10 Jul 2024. (see below)

What have happened that could shake an IT giant to its core?

And how long is this downwards spiral going to last ?

The Cause ?

On Thu, 11 Jul 2024 - US Republican lawmakers are calling for a probe into Microsoft $1.5 billion investment in Abu Dhabi-based artificial-intelligence (AI) firm “G42”.

It’s a sign of how the Middle East is set to become a flashpoint in US efforts to keep AI technology out of Chinese hands.

The lawmakers requested that National Intelligence Council assess any ties between G42 and China, as well as the risk of transfer of sensitive US technology to China in a public letter on Thu, 11 Jul 2024.

Lawmakers Highlights.

Representatives Michael McCaul & John Moolenaar have iterated that:

  • The deal may be one of the most consequential investments by a US technology firm in the Middle East in decades.

  • As such, it deserves continued special scrutiny by both (a) the executive branch and (b) Republican’s Committees to ensure that strategic and national security interests are protected.

Both lawmakers are chairmen of the House Foreign Affairs Committee and Select Committee on the Chinese Communist Party, respectively, and sent the letter to White House national security adviser Jake Sullivan.

Microsoft’s investment was announced in April 2024 and involved its President Brad Smith joining the board of G42 and the Abu Dhabi company using Microsoft’s cloud services for its AI

The deal was an expansion into a region expected to become an important hub for AI, as various Middle Eastern governments pour money into the technology.

According to Bloomberg:

  • In early 2024, Abu Dhabi was reported to be setting up an investment firm targeting deals in AI and semiconductors.

  • It aims to amass $100 billion or more in assets under management in a few years.

  • G42 was set to be a founding partner of the firm.

Concerns.

There are concerns about the Middle East being used as a conduit for AI technology to eventually reach China.

It is precisely for this reason that chip maker $NVIDIA Corp(NVDA)$ faces limits on exports of its most advanced chips to the Middle East.

Similarly, Dutch chip-machine maker $ASML Holding NV(ASML)$ have also succumbed to US pressures on sales restriction to China. (see below)

Letter’s Highlights.

McCaul and Moolenar’s letter highlighted:

  • Recent talks between U.A.E. President Sheikh Mohamed bin Zayed Al Nahyan and Chinese President Xi Jinping, that Chinese state media said included discussions about cooperation on AI.

  • The recognition that Microsoft will restrict transfer of sensitive technology to G42 during the first phase of the agreement.

  • The understanding that negotiations regarding second phase (that would involved export of sensitive US-origin technology to the U.A.E.) are currently under way.

  • If second phase is to proceed, it will require significantly more robust national security guard rails.

So far.

As of Fri, 12 Jul 2024 morning, Microsoft did not respond to a request for comment.

Shares were down -0.3% in Friday morning trading.

When it comes to market capitalization, there must be a reason why Microsoft is still at the pole position.

Looking at its past performances:

  • For past 12 month, it has gain +32.41% or $111.04.

  • For past 6 months, it has gain +16.25% or $63.44.

  • For past 5 days, it has lost -2.71% or -$12.66.

  • For Friday trading, it has lost -0.22% or -$1.00.

My viewpoints: (mine only)

With all eyes hawking over this recent filing, Microsoft has a challenge ahead trying to navigate thru this landmine with deft.

If it is able to secure clearance from the US government, potential rewards include:

(1) Accelerated AI Development: The partnership could lead to rapid advancements in AI technology and its applications. This would give Microsoft a strong foothold in the Middle East.

(2) Global AI Hub: It strengthens the UAE's position as a global AI hub, potentially attracting more investments and talent to the region, leveraging on Microsoft’s products & services no doubt.

(3) Economic Growth: The investment can stimulate economic growth in the UAE and create new job opportunities, with Microsoft penetrative involvement as well.

(4) Market Expansion: Microsoft gains access to new markets in the Middle East and Africa through G42's network.

The reverse could be felt, if Microsoft fails to get governmental approval.

(5) Regulatory Scrutiny: Increased scrutiny from regulatory bodies is likely, which could lead to (a) delays, (b) additional costs, and (c) reputational damage for Microsoft.

(6) Potential Penalties: If found to have violated export control or other regulations, Microsoft could face significant penalties.

Other Opportunities.

Like any global company, Microsoft does not pursuit just one project at any one time but many projects simultaneously.

Should the UAE partnership fails to launch (for whatever reason/s), Microsoft will not remain doomed.

This is because it still have other going projects as well. (see below)

(a) Bright Machines Investment: On 25 Jun 2024, Microsoft invested in Bright Machines, contributing to their $106 million funding round 1. Bright Machines focuses on intelligent factory automation and robotics.

(b) AI Data Center Infrastructure Expansion: Microsoft allocated $3.2 billion to expand its AI data center infrastructure in the United Kingdom. The initiative aims to enhance AI capabilities with over 20,000 high-end GPUs by the end 2026.

(c) Large Investment in France: Along the same vein as UK infrastructure investment, Microsoft is undertaking a similar and a significant investment in France to accelerate AI adoption, skill development, and support startups. This is a part of its broader strategy to strengthen its AI capabilities and cloud infrastructure globally.

This is the “beauty” of investing in established Mega-cap US listed companies. Availability of resources (money, talents, intellectual properties etc…) assures more than its survivability.

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  • Do you think Microsoft will be able to secure clearance for its investment in G42?

  • Do you think Microsoft will be able to further its AI-cause and thrive prosperously, in light of piling restrictions by US government?

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  • Taurus Pink
    ·07-20
    TOP
    [龇牙] [龇牙] [龇牙] [龇牙]
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    • JC888
      Hi, tks for reading my post. Hope u liked it. Do you think MSFT will cont'd to dip further this week? Considering worldwide chaos it created with CrowdStrike outage.... Looks like no contingency plan for its infrastructure.... Bad planning?
      07-21
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  • JC888
    ·07-17
    Hi, tks for reading my post. I make time to write and share my post.
    Pls help to "Re-post". Tks! Rating is important (to me).
    Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
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  • JC888
    ·07-18
    Thanks to Mr T & V theatrics, the upwards trending momentum has been halted by these 2 actors...
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  • Great analysis
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    • JC888
      Hi, tks for reading my post. Glad you liked it.
      MSFT fall today (17 July) is part due to returng ex-president and his sidekick antagonistic.
      U think?
      07-18
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