Microsoft is navigating a “perfect storm” of financial instability and consumer resentment as its ambitious pivot to Artificial Intelligence begins to backfire. Following two devastating share price crashes in a single week, Wall Street analysts and global consumers are asking the same question: Has the world’s most powerful software company lost its way?
The crisis, which wiped billions off Microsoft’s market valuation overnight, was catalysed by rare back-to-back downgrades from Melius Research and Stifel.
Analysts expressed “shock” at the low adoption rates of Copilot—estimated at just 15 million paid users despite three years of aggressive marketing—while the company simultaneously pours an eye-watering $100 billion to $200 billion into AI infrastructure.
The “Lose-Lose” Capital Trap
Melius Research analyst Ben Reitzes described Microsoft’s current position as a “lose-lose” scenario. To keep pace with Google and Amazon, Microsoft must continue to ramp up its capital expenditure (capex), a move that is already cannibalizing its free cash flow.
“If they don’t increase spending now, it reflects an execution issue or a desperate need to manage earnings,” Reitzes warned. “Neither is a good sign for investors.”
Compounding the financial dread is the massive $625 billion backlog of contracted revenue, of which nearly 45% is tied to OpenAI commitments. Analysts warn this high concentration of risk makes Microsoft vulnerable to any cooling of the AI sector.
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https://www.channelnews.com.au/microsoft-under-fire-stock-plummets-as-forced-ai-strategy-and-surface-failures-ignite-global-backlash/