Microsoft Responds to Investor Concerns Over AI Spending

Overview of Recent Developments: Microsoft Corporation MSFT is addressing recent investor fears regarding its artificial intelligence (AI) investments. This follows reports of the company canceling data center leases, which prompted market anxiety.

Analyst Dan Ives reassured investors, labeling the concerns as “more smoke than fire.” Ives emphasized that Microsoft’s long-term strategy for AI investment is well positioned.

What Happened: On Friday, a report from TD Cowen suggested that Microsoft had canceled leases with at least two private data center providers. This news contributed to a sell-off in the stock market.

However, Microsoft quickly responded on Monday, affirming to CNBC that its commitment to an $80 billion AI infrastructure investment is intact. The company stated, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions.”

Ives, who leads technology research at Wedbush, noted that such adjustments are commonplace for Microsoft. He explained, “Microsoft does this all the time. They foreshadowed it even on the conference call. This is more smoke than fire.” He expressed confidence, stating, “Any sell-off here, this is a name that’s way oversold, and nothing here in any way makes us nervous.”

Importance of the Situation: The anxiety among investors is partially due to the rise of DeepSeek and its low-cost AI model R1, which reportedly costs under $6 million and outperformed prominent models from OpenAI.

Despite this trend, Ives remains optimistic about both Microsoft and Nvidia Corporation NVDA, highlighting robust demand for AI computing resources.

Following DeepSeek’s rise, Nvidia’s stock suffered a 17% drop in one day. Yet, since January 27, Nvidia shares have bounced back by 10.02%, while competitor Advanced Micro Devices AMD saw a 6% decline.

Nvidia is scheduled to release its earnings report on Wednesday, February 26, and Ives anticipates a $2 billion revenue beat, expecting this to clarify the state of the company’s performance.

This year, major tech companies are significantly increasing their AI investments. Amazon, Meta, Microsoft, and Alphabet are collectively committing $320 billion to AI infrastructure, a notable increase from $246 billion the previous year. Amazon is leading the charge with over $100 billion earmarked, while both Microsoft and Alphabet are targeting around $80 billion, and Meta is investing more than $60 billion.

Latest Stock Performance: Microsoft’s stock closed at $404 on Monday, experiencing a 1.03% drop for the day. Year-to-date, it has decreased by 3.48%, and over the last 12 months, it has fallen by 0.87%, according to data from Benzinga Pro.

Photo Courtesy: dotshock on Shutterstock.com

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.