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Microsoft Bets Big on AI with DeepSeek Amid Cloud Growth Concerns

Word on the StreetThursday, Jan 30, 2025 12:00 am ET

1min read

Microsoft's latest earnings call spotlighted the burgeoning role of artificial intelligence, with DeepSeek repeatedly mentioned as a focus of innovation. CEO Satya Nadella underscored that DeepSeek-R1, an AI model, is accessible via Microsoft’s Azure AI Foundry and GitHub and will soon be integrated with Copilot+ PC. Nadella emphasized that DeepSeek harbors genuine innovation, noting a trend of decreasing AI costs that could drive further demand and applications.

Microsoft's financial performance in the second quarter of the 2025 fiscal year highlighted a significant growth in its AI business. The company reported quarterly revenues of $69.63 billion, a 12% increase from the previous year, with net income rising by 10% to $24.1 billion. Azure cloud services, a key driver, showed a 31% increase, fueled by AI adoption.

Despite these gains, Microsoft's stock dipped post-earnings report amid concerns over slowing cloud service growth. The company projects third-quarter revenues between $67.7 billion and $68.7 billion, falling short of market forecasts.

Nadella remains optimistic about AI's future, citing advancements in AI training and inference efficiency, with each new hardware generation offering a two-fold increase in cost-effectiveness, and models yielding tenfold improvements. Microsoft's AI revenue run rate already exceeds $13 billion, marking a 175% annual increase.

However, the drop in cloud computing growth and subdued earnings guidance weighed on investor sentiment, urging Microsoft to address cost concerns while maintaining substantial AI investments. As Microsoft boosts its investments, the firm remains focused on capitalizing on AI's vast potential, anticipating continued capital expenditure growth, possibly surpassing $80 billion in the 2025 fiscal year.

As discussions around DeepSeek intensify, the pursuit of lower AI costs and heightened efficiency exemplifies Microsoft’s strategic shift. Nadella's insights suggest that the decreasing costs of AI could lead to broader accessibility and development, benefiting both Microsoft and its global clientele.

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