Large Tech Company Treads New Ground with Generative AI, Yet Investers Should Be Aware of These Potential Threats
AI, or artificial intelligence, is a buzzword in the tech world now, and companies like Microsoft are building their futures around it. However, while AI offers significant business opportunities, it also poses substantial risks that investors should be aware of. Let's dive into the AI-related risks Microsoft has highlighted in their earnings calls and public statements.
Microsoft's take on AI risks
A research report by Our Website analyzed how the "Magnificent Seven" tech companies, including Microsoft, approached AI topics in their earnings calls during the first three quarters of 2024. Microsoft distinguished itself as the most vocal about AI risks, devoting around 10% of its AI mentions to risk analysis, compared to 4% for Amazon and less than 3% for Apple.
Microsoft focused primarily on the demand and capacity challenges related to their Copilot AI assistant tool and Azure cloud-computing platform. Let's explore these risks in more detail.
Building AI infrastructure: A costly and time-consuming endeavor
Microsoft CEO Satya Nadella acknowledges the surging demand for generative AI services but points out the practical obstacles. Data centers, power infrastructure, and supply chain challenges make it difficult to meet this demand quickly and at scale. However, Microsoft views these investments as long-term assets that will reap significant returns.
Struggling to keep up with the surging AI demand
Regardless of their scale and investments, Microsoft finds it challenging to keep up with the increasing demand for their AI solutions. Despite announcing near-term AI demand exceeding their capacity three times between April 2024 and October 2024, they remain committed to addressing this challenge.
Competition from up-and-coming startups and competitors
The Chinese AI startup DeepSeek has emerged as a competitive threat, demonstrating that agentic AI tools can be developed with far fewer resources than industry giants like Microsoft. Microsoft, however, sees this as a typical evolution of any emerging market, where technology innovations drive down costs and improve the quality of computing services.
Addressing the risks
Microsoft has a multi-faceted approach to managing AI-related risks. They focus on:
- Building AI infrastructure: Microsoft invests heavily in data centers, power infrastructure, and technological advancements to cater to the growing demand for AI services.
- Meeting surging demand: By continuously upgrading their infrastructure and optimizing their supply chain, Microsoft aims to meet the ever-increasing demand for AI services.
- Embracing competition: Microsoft views competition as a natural part of the market evolution and is committed to staying at the forefront of AI innovation.
- Ethical alignment: Microsoft emphasizes the importance of ethical guidelines and robust safety measures to ensure that AI systems are ethically aligned and promote human values.
- Strong human oversight: Microsoft combines AI systems with strong human oversight and continuous risk management to ensure effective guidance and supervision.
In conclusion, while AI presents significant opportunities, developers and investors should not overlook the challenges and risks associated with its deployment. By addressing these risks with a comprehensive approach, companies like Microsoft aim to create powered and ethical AI solutions that benefit both their customers and the market as a whole.
In 2025, investors might be surprised to see Microsoft's focus on AI risks, given the company's significant investments in the technology. The surging demand for generative AI services and the associated challenges in building AI infrastructure, such as data center requirements and power infrastructure constraints, pose significant costs and time challenges for Microsoft.
Furthermore, despite Microsoft's investments and efforts to meet the increasing demand for their AI solutions, they continue to struggle to keep up with the surging AI demand. This challenges their capacity to deliver AI services, and despite announcing near-term AI demand exceeding their capacity multiple times, they remain committed to addressing this challenge.
However, Microsoft views these challenges as long-term assets and is optimistic about the significant returns they will eventually reap. The company also acknowledges competition from up-and-coming startups and competitors, such as Chinese AI startup DeepSeek, but sees this as a natural part of the market evolution, where technology innovations drive down costs and improve the quality of computing services.
To manage these risks, Microsoft has a multi-faceted approach that includes building AI infrastructure, meeting surging demand, embracing competition, emphasizing ethical alignment, and ensuring strong human oversight and continuous risk management.
