Microsoft Stock Dips Amid AI Industry Warning
Morgan Stanley has sounded an alarm on the artificial intelligence industry, warning that AI revenue isn't rising as fast as AI cost. The investment bank says hyperscalers are expected to grow their capital spending by 57% this year relative to 2025, with Microsoft planning to spend $190 billion building out its AI infrastructure.
The gap between capital deployment and revenue generation is putting pressure on near-term cash generation, Morgan Stanley warns. Some hyperscalers aren't generating enough free cash flow to cover their enormous cash outlays, and will need to take out more loans to cover the gap at higher interest rates.
Microsoft is not one of those companies, however. Despite carrying a substantial debt load of $129 billion, it has $77 billion in the bank to cover its payments and is generating significant free cash flow - $67 billion this year, according to S&P Global Market Intelligence.