Microsoft Should Be Thrown Out Of Magnificent 7

The Magnificent 7 are supposed to comprise the world’s hottest megacap companies. Their businesses will control the future. They are a mix of AI, search, the future of vehicles and robots, Alphabet (parent company of Google), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Meta Platforms (parent company of Facebook and Instagram), Microsoft, Nvidia (NASDAQ: NVDA | NVDA Price Prediction), and Tesla (NASDAQ: TSLA) hold the keys to everything from jobs to electricity. Their market caps, as a whole, exceed $20 trillion. That is about the same as China’s GDP.

As a group, they are up 5% this year. The S&P 500, on the other hand, is up 9%. Among other things, their futures have become unbundled. None is more unbundled than Microsoft (NASDAQ: MSFT), which is down 13% this year. The primary reason is that, in the early stages of the AI revolution, it was a leader. Now, it has fallen well behind.

The disasters could not have been seen as recently as 2023. That year, it put $10 billion into OpenAI, the market leader. It has already invested $3 billion in two earlier investment rounds. Microsoft planned to integrate OpenAI’s technology into Azure cloud computing products, and Microsoft also set a deal that blocked OpenAI from other cloud deals. The partnership unraveled as OpenAI created major partnerships with Microsoft rivals.

By last month, the OpenAI marriage with Microsoft barely resembled the one established three years ago. In the formal announcement of the new arrangement, the most important section was “Microsoft will continue to have a license to OpenAI IP for models and products through 2032. Microsoft’s license will now be non-exclusive.” Microsoft’s AI future is in deep trouble.

In the meantime, Nvidia had become the AI chip ruler of the world. Amazon had plowed billions of dollars in new products. Its AI integration with AWS has already been driving revenue. It has created chips that partially compete with Nvidia.  Google has integrated its Gemini product across its entire product ecosystem,  Meta has used AI to supercharge its ad revenue and engagement with a universe of over two billion daily Facebook users. Apple has started to integrate Gemini into its next-generation devices (this is good or bad, depending on who asks and answers). Apple gets world-class AI without deepening a financial commitment. That means Apple dodges tens of billions of dollars in AI infrastructure buildout. However, it now depends almost exclusively on Google) Tesla lags in stock price. But Elon Musk continues to pitch, with some success, a Tesla built on AI and robots.

Among the most powerful arguments about Microsoft’s dim AI future is the claim that it lacks an AI presence with both consumers and enterprises.

Should the Magnificent 7 become the Magnificent 6? Probably. There are no other tech companies with massive AI firepower and trillion-dollar market caps. So, Microsoft goes, because it is the AI loser. And no one is big enough to get added.