A lot of people seem to find MSFT very attractive at these price levels. I must admit I find it tempting also. The one thing putting me off is their exposure to Open AI.
I don’t see them winning the AI race. They face intense competition from Google, Anthropic and Deepseek. They arguably no longer have the best AI model and with Googles huge CAPEX spend next year I don’t see that changing. Eventually Gemini will be integrated with IOS and Android which will steal away a large portion of Chat GPTs user base.
Now why is this bad for MSFT? 45% of their $625 billion Remaining Performance Obligation (RPO) is Open AI. What happens to MSFT if Open AI are unable to fulfil their commitments? Id love to hear other people’s thoughts on this.
Personally I don’t see anyone plugging this gap and this would be a huge loss for MSFT in the short term. Of course Microsoft is a solid company and if Open AI failed this wouldn’t be the end for them. But I’m reluctant to invest my money in them when they have such large ties in a company I don’t see a future for.
Edit: Just to be clear I am generally bullish on the rest of Microsoft’s core business. It is specifically their exposure to Open AI that I am skeptical of. I am also bullish on AI as a whole although that doesn’t necessarily mean I think LLMs will be profitable.