Microsoft's AI endeavors promise significant rewards, but takes time for investors

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Microsoft's top executives delivered a reality check to investors who may have been overly optimistic about the immediate benefits of artificial intelligence. During the earnings call, the company's shares experienced a nearly 4% drop in after-hours trading, as executives emphasized that the payoff from AI will be gradual, while expenses will rise.

Amy Hood, Microsoft's Chief Financial Officer, cautioned that growth from their AI services would take time as Azure AI scales and Copilot reaches general availability. This growth will be supported by increased capital spending as the company continues to expand its cloud and data-center infrastructure.

Although Microsoft is seen as a front-runner in generating early revenue from AI-related products and partnerships, the company doesn't expect significant AI-based revenue until the second half of the fiscal year. Their highly anticipated Microsoft 365 Copilot, powered by OpenAI's GPT-4, carries a $30 per user, per month price tag, raising concerns about adoption.

Despite the promising opportunities, analysts are taking a more cautious approach. They question the $30 price point and its impact on adoption, though some predict substantial revenue generation in the second half of 2023.

Both Hood and Microsoft CEO Satya Nadella stressed that Copilot will drive increased usage of Azure, expecting a growth rate of about 25% to 26% in the fiscal first quarter. However, they acknowledge that the AI adoption process is still in its early stages, and significant revenue generation will require time.

Investors are urged to adjust their expectations and adopt a longer-term perspective rather than anticipating immediate gains from AI. Microsoft's early foray into AI is promising, but they must be patient as the technology continues to mature.