Wall Street’s long-standing optimism about artificial intelligence is being put to the test as investors reconsider the impact of OpenAI and generative AI on the technology sector. The recent selloff in tech stocks, highlighted by a significant decline in Microsoft shares, suggests that investors are growing weary of the “spend now, profit later” strategy that has characterized the AI market over the past three years.
On Thursday, Microsoft experienced a staggering 12% drop in its stock price, resulting in a loss of over $440 billion in market value. This decline is among the most severe since the pandemic, contributing to an overall dip of nearly 2% in the Nasdaq index. A key driver of this selloff appears to be Microsoft’s announcement of a 66% surge in capital expenditures, reaching $37.5 billion in the latest quarter, coinciding with a slight slowdown in its Azure cloud business growth. Analysts are particularly concerned about the revelation that around 45% of Microsoft’s $625 billion in remaining performance obligations is tied to OpenAI, illustrating the interconnectedness of the two companies.
Jim Cramer from CNBC highlighted the contrasting fortunes of software and hardware investments during this period. As tech companies burn through cash on software infrastructure without delivering immediate returns, investors are becoming increasingly wary. Morning Brew cofounder Austin Rief echoed this sentiment, emphasizing the unsettling nature of these statistics, especially in light of Meta’s continued investments in capital expenditures, buoyed by a robust 24% year-over-year revenue growth from online ads.
This shift in investor sentiment isn’t confined to Microsoft. Oracle’s stock has also plummeted, losing half its value since September, reflecting skepticism about its large-scale investments in data centers for OpenAI. Concerns mounted further as project timelines reportedly slipped to 2028, raising questions about when, or if, these investments will translate into revenue.
OpenAI has made substantial commitments, approximately $1.4 trillion, to secure the energy and computing resources needed for its operations; however, its revenue projections remain modest, barely expected to reach $20 billion by 2025. This has led investors to criticize what they perceive as “circular” funding arrangements between major players in the industry. Recent reports suggest that OpenAI is seeking an additional $60 billion in funding from leading firms like Nvidia and Amazon, but market reactions indicate skepticism that more financial backing can effectively support a sustainable business model.
As the tech landscape evolves, the market finds itself at a crossroads—balancing the promise of transformative technology against the reality of financial return expectations. Investors are now calling for clearer indicators of profitability, emphasizing that the future of AI and its impact on tech giants hinges on more than just funding—it requires a viable path to sustained growth.