Microsoft (MSFT) shares recently lagged the broader gains in tech stocks, following softer-than-expected cloud sales outlooks from two key rivals and a report that suggested U.S. regulators are probing ChatGPT creator OpenAI.
Salesforce CRM, which competes against Microsoft's Azure in the burgeoning cloud computing space, posted better-than-expected fourth-quarter earnings late Wednesday but issued a muted revenue growth forecast for the coming year.
Snowflake (SNOW) , a smaller rival in the cloud space, also sees 2024 revenues below Wall Street estimates, with product sales of around $3.25 billion, amid a pullback in corporate spending and intensifying competition.
Cloud spending growth remains a key plank in Microsoft's AI ambitions, as it layers various offerings across its broader tech stack, tied in part to the rollout of its AI support program called Copilot.
Microsoft said earlier this year that AI infusions added around 6 percentage points to the revenue growth of Azure, its flagship cloud product, over the three months ending in December.
That's more than double the impact over the September quarter and helped Azure grow revenue by around 30%, which in turn powered a better-than-expected top line for the group's Intelligent Cloud unit of $25.9 billion.
Microsoft linked to myriad regulator probes
Microsoft's bigger concern, however, may lie in a Wall Street Journal report that says the Securities and Exchange Commission is looking into the communications of OpenAI CEO Sam Altman, who was publicly backed by Microsoft boss Satya Nadella during a boardroom coup last year, amid concerns that the ChatGPT creator's investors may have been misled.
Altman was briefly ousted by the OpenAI board, who cited the CEO hadn't been “consistently candid in his communications" in November. Following an outpouring of support from OpenAI staff and public statements from Nadella, Altman returned to the helm shortly after.
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OpenAI recently closed a private fundraising that values the group at around $80 billion. Microsoft reportedly invested $13 billion in OpenAI, including a $10 billion increase in January of last year, but the funding is tied to a share of future profits and was not structured as an equity stake.
That arrangement has raised concerns among regulators in the U.K., which have challenged other Microsoft deals, including its $69 billion takeover of video game maker Activision Blizzard.
Cloud growth key to Microsoft's AI ambitions
Britain's Competition and Markets Authority late last year that it would look into Microsoft acquiring a seat on the OpenAI board, which it assumed following Altman's chaotic exit and return, to determine if it means "de facto control" of the group.
Last summer, the U.S. Federal Trade Commission said it plans to investigate OpenAI over allegations of using personal data in the ChatGPT platform.
The FTC said it is concerned that ChatGPT, a large-language model search engine launched by OpenAI earlier this year, generates "statements about real individuals that are false, misleading, or disparaging."
Related: Microsoft may face UK, FTC probes into OpenAI partnership after taking board seat
European regulators are also set to probe Microsoft's partnership with AI start-up Mistral to determine if, as in the CMA investigation into OpenAI, the tech giant's stake amounts to "a decisive influence" over the Paris-based startup.
"The likely initial questions European lawmakers will focus on is how the new deal works in practice and, more specifically, what rights Microsoft has acquired over Mistral in the context of the EU’s merger control framework/rules," said Alex Haffner, a competition partner at the London-based law firm Fladgate.
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Microsoft's larger AI focus likely won't be derailed by any deepening investigation at OpenAI, given the scale and leadership of its cloud division, but any suggesting that a probe would stifle innovation at ChatGPT, the key driver of its effort to challenge Google parent Alphabet in online search, would be notable.
More Personal Computing, the reporting group that includes Microsoft's Bing search engine, generated just under $17 billion in December quarter revenues, a near 20% increase from the year-ago period, thanks in part to ChatGPT enhancements.
Microsoft shares have gained around 24% over the past six months, valuing the Redmond, Washington, tech stock at just over $3 trillion.
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