Microsoft Stock Dropped Amidst AI Industry Concerns

Morgan Stanley, an investment banker, has sounded an alarm for the artificial intelligence industry. According to Morgan Stanley, AI revenue growth is not matching the increasing costs of capital spending.

The report warns that hyperscalers, including Microsoft, will need to take out loans to cover the gap between their capital deployment and revenue generation. However, Morgan Stanley believes that some companies may end up paying higher interest rates as a result.

Microsoft, however, is seen as one of the better credit risks in the industry. The company has a substantial debt load of $129 billion but also has $77 billion in cash reserves to cover its payments. Additionally, Microsoft is expected to generate $67 billion in free cash flow this year, despite capital investment.