Tech giant Microsoft (MSFT) has been under the radar lately for a myriad of reasons. The tech behemoth has been riding the wave of layoffs and tackling inflation and recession fears, on the one hand. On the other hand, it has also been navigating new markets with a multibillion-dollar investment in an AI company called, OpenAI. Here’s what you need to know about Microsoft:
Microsoft Hops on the Big Tech Layoffs Bandwagon
Tech layoffs have been a motif that accompanied the global markets in 2022, as many big names in the tech field had to surmount rising inflation and higher interest rates. This is because, in times of inflationary pressure, market uncertainty, and recession fears, traders and investors tend to shy away from tech stocks trading as they opt for inflation-proof safe haven assets instead. As a result, many tech companies including Meta (META) and more recently Alphabet (GOOG), Amazon (AMZN), and evidently, Microsoft had to resort to layoffs in order to compensate for the losses incurred in the past couple of months. It is worth noting that Microsoft did resort to layoffs in 2022, but these were minor efforts compared to 2023’s round of layoffs. Accordingly, in 2022, Microsoft lost a whopping 28.6% of its value marking the worst year since its IPO in 1986. The company also incurred a loss of over $700 billion in value that year. This may be why, on January 18, 2023, the company announced that it would cut 10,000 employees, a reduction of nearly 5%.
Microsoft explained that the layoffs are in response to the shifts in the economy and consumer demands. Microsoft’s CEO, Satya Nadella, even said that since consumers are reducing their digital spending following the pandemic, the company had to cut some roles. Moreover, according to the tech giant, a combination of severance pay, changes to Microsoft's hardware portfolio, and "lease consolidation" will cost Microsoft to lose about $1.2 billion in the second quarter.
Nevertheless, despite this dreary outlook, Nadella revealed that Microsoft will continue to invest in strategic areas for future growth which may be reflected in yesterday’s announcement to invest in the ChatGPT creator, OpenAI.
Microsoft Announces Multibillion Investment in OpenAI
On Monday, the tech behemoth announced that it intends to invest in OpenAI, an American artificial intelligence research laboratory that made a hype with its ChatGPT AI chatbot. While the company did not specify how much exactly it would be spending on this new purchase, some stipulate that it may be as high as $10 billion. This would be the two companies’ third time partnering up together with the first time being in 2019 and the second in 2021. According to Microsoft, this partnership will allow the companies to delve deep into supercomputing at scale and develop AI-driven experiences. While this news’ effect is yet to be determined, on Monday Microsoft rose by 1% but whether or not it is due to the announcement is unclear. Some posit that the stock was slightly up ahead of its anticipated earnings release today. (Source:CNBC)
Microsoft Earnings Report
Perhaps one more factor traders and investors should take into consideration, is Microsoft’s upcoming earnings results. Today, Tuesday, Microsoft is expected to report the results of Q2 2023 earnings after the market closes. Analysts seem to believe that Microsoft will report above-expected revenues and earrings. This is because the company has already exceeded expectations in the first quarter of the fiscal year 2023, as its revenues hiked by 11% YoY and they expect this upward trend to be sustained throughout the second quarter of the fiscal year. In addition, since the company seems to be shifting its focus to AI many believe that it could potentially recoup some of its losses in the near term. According to estimates, Q2 2023 EPS will be around $2.31 on revenue of just under $53 billion. (Source:Forbes)
As it stands, Microsoft investors and traders may have a lot on their plate, right now. Whereas on the one hand, big tech companies are continuing to layoff employees to cut back on costs, Microsoft’s recent announcement that it would invest billions of dollars in OpenAI, all while still trying to combat inflation and higher interest rates further increase the uncertainty surrounding this tech giant’s future. Traders may want to keep a keen eye on today’s earnings results, and the economy as a whole, and track the stock’s trajectory in the upcoming days to determine how it will fare.