In Greek mythology, the worst thing you could do was defy the gods.
The offense was so serious that it valued its own special word: pride.
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Icarus thought he could fly close to the sun. Narcissus rejected Echo’s advances and was cursed to fall in love with his own reflection. Oedipus ignores a prophecy, and we all know how well that turned out.
Today we use the word to describe excessive pride, and Satya Nadella is making sure to keep his guard up.
“From ancient Greece to modern Silicon Valley, there is only one thing that brings down civilizations, countries and companies, and that is hubris,” Microsoft says. (MSFT) the CEO said in a recent podcast interview.
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Nadella recalled the first day the Redmond, Washington-based software giant became the largest company by market capitalization.
“I remember walking around campus — all of us, including myself — and all walking around like we were the best thing for humanity and it’s all of our genius that ultimately gets reflected in the market cap,” he said. “And somehow it stuck with me: ‘God, that’s the culture you want to avoid.'”
Nadella credits his wife with introducing him to psychologist Carol Dweck’s book on developing a growth mindset.
He said he was encouraging his people to go from know-it-alls to all-learners.
“It’s a destination you never reach because the day you say ‘I have a growth mindset’ means that by definition you don’t have a growth mindset,” he said.
The technology world is facing a shortage of semiconductors, but Nadella said during the interview: “I am not limited in the supply of chips.”
“We were definitely limited in ’24,” he said. “What we’ve been telling (Wall Street) is that’s why we’re optimistic about the first half of ’25, the rest of our fiscal year. And after that, I think we will be in better shape in 2026 and so we have a good view.”
Microsoft is believed to be from Nvidia (NVDA) largest customer, and Nadella’s comments sent the AI chipmaker’s shares tumbling.
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Nvidia’s GPUs enable the integration of generative AI models such as OpenAI’s GPT in Azure, Microsoft 365 Copilot and Bing.
The company owns about 49% of artificial intelligence group OpenAI, which is credited with fueling global interest in artificial intelligence when it released ChatGPT in November 2022.
Nadella, who joined Microsoft in 1992 and became CEO in 2014, discussed the so-called Magnficient 7, a group of tech companies with massive market capitalizations, including Apple, Google parent Alphabet, Amazon, Facebook parent Meta, Microsoft, Nvidia and Tesla.
“When you think of OpenAI, in a sense you could say it’s Mag 8,” he said. “I think the company of this generation has already been created, which is Open AI. In a way, it’s a bit like the Google, or Microsoft for that matter, of this era.”
While he says the AI field will be highly competitive, Nadella doesn’t see a winner-takes-all scenario.
“There will be stiff competition between the seven, eight, nine or 10 of us at different levels of the stack,” he said. “And as I always say to our team, pay attention to whoever comes and adds. … I would say OpenAI is one of those companies that has breakout velocity right now.”
Microsoft shares are up 15.5% this year. The company beat Wall Street’s first-quarter earnings estimates in October, but the stock fell after MSFT forecast slower-than-expected growth.
Loop Capital analyst Yun Kim released a research report on December 23 that adjusted estimates for select software names.
The analyst raised the company’s price target for Microsoft from $500 to $550 and reaffirmed a buy rating on the stock.
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Kim noted that consensus estimates for the company for the coming years are artificially lower due to the steep capital investments required to support generative AI initiatives.
The analyst says Microsoft’s shares should command a much larger premium than its major software businesses.
Capital expenditure has been a major problem in the age of AI.
In the first half of 2023, Big Tech spent roughly $74 billion on capital investments, Fortune reported last month. By the third quarter of that year, that amount had risen to approximately $109 billion.
In the first half of 2024, Big Tech spent nearly $104 billion, up 47% year over year. By the third quarter, that amount had risen to $170 billion, an increase of 56% from a year earlier.
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Microsoft and Amazon combined for $42.6 billion in investments in the third quarter of 2024, with Alphabet maintaining its rate of about $13 billion per quarter and Meta beginning to accelerate its spending.
During Microsoft’s earnings call, Chief Financial Officer Amy Hood said capital expenditures, including finance leases, were $20 billion, in line with expectations, and cash payments for property, plant and equipment, or property, plant and equipment, were $14.9 billion amounted to.
“About half of our cloud and AI-related spend continues to be on long-lived assets that will support revenue generation for the next fifteen years and beyond,” she told analysts. “The remaining cloud and AI spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals.”
Free cash flow was $19.3 billion, down 7% year over year, she said, “due to higher capital expenditures to support our cloud and AI offerings.”
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