What you need to know
- Microsoft is slated to report its first fiscal quarter earnings on Wednesday.
- Despite overall growth revenue, projections suggest the firm's AI department could report dismal Copilot Pro sales.
- Investors have already sparked concern about the company's spending on AI projects with little profit returns.
Microsoft will announce its first fiscal quarter earnings report later this week. Like the last earnings call, speculations project dismal artificial intelligence sales despite the hype and hefty resources pumped into the category (via Reuters).
This is highly concerning since investors have raised concerns about the tech giant's spending on AI projects. Microsoft is among the leading companies in the AI landscape. Its partnership with OpenAI granted it an early lead in the category, prompting heavy integration of cutting-edge technology across its ecosystem.
However, reports indicate that Microsoft is struggling to establish growth in the category, with consumers showing little interest in its Copilot AI monthly subscription service plan — Copilot Pro. Interestingly, a poll feature on Windows Central disclosed that more than half of the polled readers don't use the service.
Related: Salesforce CEO says Copilot is just the new Microsoft Clippy
Likewise, a separate report revealed that the top complaint in Microsoft's Copilot department is that it doesn't work as well as ChatGPT. Microsoft clarified that this isn't the case, indicating that users aren't leveraging the tool's capabilities as intended while blaming a lack of proper prompt engineering skills. Microsoft has since launched Copilot Academy to help remedy the situation and equip users with the relevant skills.
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According to Morgan Stanley analysts, there's "a wall of sorry" around Microsoft's earnings while referring to the firm's "ramping capital expenditures, margin compression, lack of evidence on AI returns, and messiness post a financial resegmentation."
Data compiled by FactSet suggest Microsoft could report revenues of $64.57 billion for its first 2025 quarter, translating to a 14.1% raise from its previous quarterly report. Its Productivity and Business Processes unit could bring $23.6 billion in revenue, while its Intelligent Cloud unit reports $14.1 billion.
Microsoft's Azure cloud computing business is also expected to report significant growth, north of 33%, which aligns with the company's projections but significantly lower than the reported growth in the fourth quarter. This could indicate slow business in the department, possibly because of the rising and expensive AI growth demands.
The AI landscape is shaky at best
This news comes at a critical time when OpenAI was on the brink of bankruptcy, with projections of $5 billion in losses within the next 12 months. However, the ChatGPT maker was bailed out of the challenging financial situation by investors who raised $6.6 billion through a funding round, pushing its market cap to $157 billion.
It's becoming more apparent that AI advances require large sums of money and unlimited resources, including electricity, data centers, and cooling water. Experts predict Microsoft could buy OpenAI as investor interest in AI fades, prompting them to channel their resources elsewhere.
A report suggests OpenAI could burn up to $44 billion chasing sophisticated AI advances before naming profit in 2029. There's also the issue of OpenAI being on a strict clock to turn into a profit venture within the next 2 years or run the risk of refunding the money raised by investors during its latest round of funding. The move has already faced a significant bottleneck following former OpenAI co-founder Elon Musk filing a lawsuit against the ChatGPT maker over "a stark betrayal of its founding mission."
Experts also indicate that the move could encounter several roadblocks from regulators, the government, OpenAI staffers, and other key stakeholders. However, investors believe that OpenAI's current business struggles are standard for any startup and predict that it'll become the world's dominant AI company worth trillions of dollars.
