MSFT: Business Is Cooling

MSFT’s business is cooling: MSFT’s business is cooling, especially as it relates to “Server Products and Cloud Services” revenues (Premium TEK2day subscribers see figures below).

Azure, Gen AI hype and MSFT’s share price: As it relates to Azure, I believe the Azure business has experienced less demand from small and medium-sized businesses over the past several years as venture investing slowed and as interest rates moved higher. That’s just the reality. Same goes for AWS and Google Cloud Platform. I’m less concerned about Azure growth slowing by a point and more concerned by the Gen AI hype that’s driving Azure interest and MSFT’s share price.

MSFT shares were priced for perfection given the Gen AI hype. Hype is always dangerous, especially when many who own the stock do not understand the underlying technology, its drivers, nor the customer value proposition and realisitc ROI expectations. It was easy to call this hype a mile away because many Gen AI customers do not understand the technology nor how to deploy it, nor how to model realistic ROI expectations. Thus, how could investors possibly justify being super bullish on Gen AI in the near-term?

Financial trickery: Last, I did not like the fact that MSFT recategorized its financials in August. That was an attempt to obfuscate when they realized business was about to slow. The fact that the company did not restate its financials 3-5 years back was lazy.