It’s hard to find AI optimists these days.
AI-adjacent stocks have taken a battering in recent months, with Oracle and Microsoft particularly hard hit. Microsoft’s stock is down over 20% from last summer’s highs, as investors increasingly worry that the firm has over-extended and misjudged the opportunities therein.
Wider questions remain about the future viability of the tech. Cheaper Chinese models are pressuring the big U.S. hyper-scalers to find new efficiencies and strategies, as firms like OpenAI, SpaceX, Palantir, and Anthropic struggle to justify their more optimistic valuations. Some of the more dire warnings suggest the rife circular investments and financing could implode, threatening not only the associated companies, but potentially the entire global economy.
Recently, I caught up with Ed Zitron, head of EZPR and the Better Offline Podcast, who has become a prominent journalistic voice in AI analysis. Zitron’s industry-leading tech newsletter Where’s Your Ed At has become a primary source for those navigating the complex (and shady?) financial deals these companies are weaving, cutting through the industry hype with an oft-times scathing dose of reality.
I asked Zitron specifically about Microsoft’s bets in this space, as the hype train objectively begins to lose steam.
Microsoft occupies an odd space in the “AI race,” if you can still call it that at this point. Why do you think Wall Street and the stock market are rewarding Google but punishing Microsoft this year?
“It’s because Microsoft is uniquely awful at having to prove its worth outside of financials, and is run by some of the most decrepit, disconnected, and directionless leadership I’ve seen in any company I’ve ever monitored.
Whenever this company has to beguile investors, it can usually just throw up big money numbers and raise the price on Microsoft Office. This time it made the mistake of actually spending cash — and man, did AI save its ass from humiliation by distracting from its Activision-Blizzard acquisition! — on something, and doing so in the loudest way possible, because saying “AI” and spending lots of money on AI was all it took to make people buy your stock.
Sadly, $200 billion or more in capex in, Satya Nadella doesn’t really have a compelling answer as to where this money is going. He mentioned on their last earnings that they’d hit a $37 billion run rate for AI – around $3 billion a month in revenue, with the vast majority of that being OpenAI’s compute spend — and it didn’t get anybody hot and heavy, so the stock has kept tanking.”
If I surveyed 100 people about what they’d change about Microsoft I bet at least 30% of them would say “remove Copilot.”
Ed Zitron
“This is also because Azure has been a much bigger business than Google Cloud.
Sundar Pichai is also better at the financial tricks than Satya Nadella, and worked out a way to make circular financing more conspicuous, selling Anthropic its own chips and then getting those chips put in Google data centers so that it can get the revenue from Anthropic, who it funds, buying compute. That huge bump in remaining performance obligations was, to be clear, mostly from circular financing.
I have no idea why Satya didn’t do this with OpenAI’s spend, and I have to wonder if he doesn’t start being really blunt about how much it’s boosting Azure revenue, even though that’ll probably work to his detriment.
Anyway, Google Cloud is a younger and smaller business and thus much easier to show explosive growth in. Satya is also not very good at marketing.”
Do you think Microsoft will realistically see any long-term return on investment from its data center build out? Have they completely misjudged the potential?
“So, this depends on your definition of “ROI.” I think that, long-term, this will be seen as a disastrous, horrifying misallocation of capital, the kind of thing that will potentially get Satya Nadella fired.
In the short-term, Nadella got “ROI” out of AI in that it kept Microsoft interesting, and OpenAI’s compute spend buoyed Azure’s revenues without them ever having to disclose AI’s actual contribution. It was a shiny object to show investors, which gave them a vague sense of growth.
This was always a gamble, and because Microsoft started the era, it will inevitably be harmed the most by it.
No, I do not see any ROI at scale. Microsoft has spent over $200 billion on AI capex and will probably spend anywhere from $300 to $400 billion if it continues its pace past this year. It will need to make more than $500 billion in brand, spanking new revenue, in a very conspicuous way, to make any of this feel worthwhile.”
“The problem they face is that the longer this goes on, the less incremental it can be. Showing modest growth in Intelligent Cloud and Business & Productivity isn’t going to make this problem go away.
The other is that the clock starts the second they stop spending on capex, and that includes a cut of anything more than 30%. Maybe they try and spread it out, but at some point they’re gonna have to stop, because this is a ludicrous expense.
But once they do, the street will start asking them to prove that they didn’t just nuke hundreds of billions of dollars and take on a bunch of debt for no reason.
I will say this: Amy Hood is very good at her job, and likely the only reason Satya Nadella hasn’t blown up the entire company.”
Microsoft’s early investment in OpenAI was initially hailed. In your research, how has that partnership panned out? Reporting suggests it hasn’t gone well …
“At first, OpenAI must have seemed like the best thing that happened to Microsoft since it won that antitrust trial because the judge talked to the media. It was the single-most buzzy company in the world, and it had to spend money on Azure.
Satya Nadella could say that he had backed the next big tech titan, all while capturing the entirety of its value and cloud spend. The original deal – owning all the IP, making Azure their only cloud provider, all that stuff was a masterstroke.
Except it’s very obvious that something went sour there in 2024 or early 2025, likely when OpenAI demanded Microsoft build more compute than it wanted to. It must have also become clear that owning all of OpenAI’s IP and models and being able to power their services with it wasn’t actually helping Microsoft enough to justify the capex, so they got desperate and bought Mustafa Suleyman’s crappy little company so he’d bring that DeepMind magic to Microsoft.”
Microsoft is uniquely awful at having to prove its worth outside of financials, and is run by some of the most decrepit, disconnected and directionless leadership I’ve seen in any company I’ve ever monitored.
Ed Zitron
And, if I’m honest, Microsoft has embarrassed itself with AI – substandard models, lots of noise but not a lot of actual stuff, running GitHub Copilot at a massive loss for several years, then turning on token-based billing and creating a bunch of bad blood for no measurable gain?
The partnership was great when Satya had control, and the moment he let Altman buy compute from other companies was the moment he lost it, even though it was absolutely the right thing to do.”
Windows users have backlashed pretty hard against some of Microsoft’s AI products, including things like random Copilot buttons and Windows Recall. Do you see Microsoft finding any realistically good and viable uses for LLMs?
“Nope! I don’t remember the last time that Microsoft made anything that was both new and good, and every “idea” that Microsoft has is literally somebody else’s! Copilot Cowork is Claude Cowork, GitHub CLI is Claude Code, Scout is Codex or some other agentic crap; it’s all the same thing in the glossy Microsoft wrapper that used to mean “good but expensive” but now means “weird and sterile.”
This is not a product company, and the only thing they seem to be able to do with talent is lay it off. Nobody wants anything they’re selling other than for the products they like to work like they used to. If I surveyed 100 people about what they’d change about Microsoft, I bet at least 30% of them would say “remove Copilot.”
For that to change would require Microsoft to make a completely different product.”
What do you think the AI landscape will look like in 5 years, if you had to predict?
“These are all guesses, and I can’t append them to any time period. I’m pulling them out of thin air — I can’t see the future! Nobody can! These are things that could happen far more than they are for sure events.
1. LLMs are gone from the cloud other than for obscure GCP/Azure/AWS instances with AI GPUs for people doing very specific things, all of which cost way too much to do regularly.
Whatever LLMs survive are a boring on-device situation you run on a $100k workstation, and that’s not very common because they’re pretty expensive. That being said, this might also be what happens to the large amounts of GPUs that are left for dead after the bubble pops.
2. Eventually, the big labs have to start doing aggressive cost cuts, which up usage but up costs, or cost increases, which destroys usage. Either way, growth is slowing because of token-minimizing, and it’ll accelerate and eventually break the companies.”
“OpenAI dies or gets absorbed into Microsoft, who jacks up the prices and unwinds the business. The same happens to Anthropic, which likely becomes a much smaller company that’s effectively a subsidiary of Google and Amazon.
3. Microsoft does a $5bn-$10bn write-down of GPUs and Nadella is booted in favor of Amy Hood. Maybe more!
4. The software industry enters a prolonged depression within the next few years because growth starts to stumble in one of the major hyperscalers. Remember: Anthropic and OpenAI are currently boosting the revenues of Microsoft, Google and Amazon, to a level that I really should look into!
5. NVIDIA’s revenues eventually return to the 2023 era, single-digit billions of dollars annually. I also expect some sort of write-down on their side too.”
A huge thanks to Ed Zitron — now it’s your turn
Thanks a ton to Ed Zitron for joining us on this piece. Be sure to check out Ed Zitron’s podcast and newsletters here; both are full of incredible research and insights into the AI biz more recently, but also tech in general.
Often when I’m writing about AI, I feel like the big players are gaslighting me into believing that the tech is good enough to solve all of humanity’s problems, if we’ll just hang on and accept a little bit more (a lot more) compute. While it seems AI does have a role to play in parsing large quantities of data and tracking anomalies humans might miss, the “hyperscale” opportunities increasingly seem far-fetched and vague as we head through the current cycle.
Where it all ends up remains anyone’s best guess. Perhaps some kind of incredible breakthrough will give AI the nuance and accuracy it needs to actually be a viable general-purpose assistant — rather than an expensive mimicry and content theft machine.
Perhaps its pairing with robotics will enable real opportunities that have so far eluded the big corps. Or perhaps the simple truth is: there’s no real room for optimism here. Perhaps we’ve all been conned by something that seems suspiciously capable on the surface, until you actually put it to any form of real work.
What do you think? Hit the comments, let’s talk.
Join us on Reddit at r/WindowsCentral to share your insights and discuss our latest news, reviews, and more.
