Morgan Stanley Sells Alarm Bell on AI Costs, Microsoft Stock Takes Hit

Microsoft's stock price dropped by 3.2% on Thursday after Morgan Stanley sounded an alarm about the artificial intelligence industry.

The investment bank warned that AI revenue isn't rising as fast as AI cost, which could lead to a decrease in free cash flow for some companies.

Morgan Stanley specifically mentioned that hyperscalers like Microsoft are expected to grow their capital spending 57% this year compared to 2025, with Microsoft planning to spend $190 billion on building out its AI infrastructure.

However, the bank also noted that 'the gap between capital deployment and revenue generation continues to pressure near-term cash generation' for some companies.