Microsoft and AMD: Two Sides of the AI Trade


Last updated: October 30, 2024

Microsoft logoShares of Microsoft (MSFT) and AMD (AMD) diverged sharply on Wednesday as Wall Street reacted to their earnings reports.

Microsoft tumbled 7% in after-hours trading and continued to decline over 1% by Wednesday afternoon. Meanwhile, AMD surged more than 3%, also lifting fellow chip giant Nvidia (NVDA).

These contrasting performances highlight the split in the AI trade. Traders showed disappointment in Microsoft’s AI software sales, while they celebrated AMD’s chip sales growth.

The diverging reactions underscore investors’ eagerness for returns on hefty AI infrastructure investments. Software makers like Microsoft are under pressure to monetize their AI offerings quickly. Conversely, chipmakers like AMD are benefiting from the ongoing AI infrastructure buildout, boosting their revenues and stock prices.

Jefferies analyst Brent Thill pointed out in an investor note that Microsoft’s Azure revenue growth slowed from 31% in Q3 to 30% in Q4, with further slowing expected in Q1. Despite Microsoft’s assurance of improved Azure growth in the latter half of the fiscal year, Wall Street’s reaction to the slight miss in Intelligent Cloud revenue indicates impatience for the AI trade to deliver returns.

Microsoft’s Q4 earnings were solid overall. The Intelligent Cloud segment reported $28.5 billion in revenue, slightly below Wall Street’s $28.7 billion expectation but up 19% year-over-year. Total revenue hit $64.7 billion, beating the $64.5 billion forecast.

However, Microsoft’s continued hefty investment in AI data centers is notable. CFO Amy Hood revealed that capital expenditures, including finance leases, rose to $19 billion from $14 billion in the previous quarter.

As Microsoft grapples with AI monetization challenges, AMD continues to ride the wave of AI-driven demand for its chips, painting a vivid picture of the contrasting fortunes in the AI business.

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Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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