Key insights
- The author argues that Microsoft and Meta are excessively spending on AI capital expenditures with unclear return on investment, potentially harming shareholder value. This strategy is seen as burning cash on a commoditized technology without a clear moat. The opinion suggests a bearish outlook for Big Tech (Mag7) and a bullish stance on semiconductor companies like Micron and AMD, predicting a significant wealth transfer from software giants to chip manufacturers due to increasing AI-related hardware costs.
No one wants to say it proudly but $MSFT and $META are throwing billions of dollars at AI CAPEX with little to show for it. They turned what was originally a CAPEX light business with high software margins and lit it on fire. Copilot and even Meta AI are absolutely inferior to GPT/Claude by every conceivable metric. What are they even doing? AI is becoming a commodity now with so many good models in the market. There is no MOAT. More importantly, AI does not demonstrate ROI for most businesses and is a rather expensive technology financially and environmentally. OpenAI which is azures biggest customer is recently running at a loss LMAO and profitability is not clear 😂.
Instead of burning precious shareholder FCF, Satya should focus on optimizing his own products that made MSFT great or at the very least slow down CAPEX. Azure as an AI play will compete with Amazon, Google Cloud and even other players like Nebius for consumers. New more expensive chips will come out every year increasing costs ($MU will go up forever). Depreciation is a thing. It will be race for lower margins.
I get the fear…they are worried about missing out on a digital god and are willing to build and spend billions to have a stake. But at the moment, the progress is minimal after 4 years since the AI buildout started. Maybe it’s better for OpenAI and Anthropic to take the lead instead of burning precious capital with nothing to show for it. I am so confused with their AI strategy and Satya (and Zuckerberg) should be replaced. At the very least explain the ROI before incinerating shareholder cash. Please explain why I am wrong so I can cope.
TLDR: Short Mag7 and long semis. Biggest transfer of wealth in history from $MSFT shareholders to $MU and $AMD shareholders. Multiple compression is here to stay bois