Was I WRONG about Microsoft (MSFT)?

1st February 2024

Sam Volkering

Feb 01, 2024

Welcome to AI Collision 💥,

An image of a stock picker, depicted as a cartoon character, in an office environment looking shocked and dismayed while holding a paper showing a chart with Microsoft stock unexpectedly skyrocketing. The stock picker has a bewildered expression, with exaggerated features like wide eyes and a dropped jaw. The office is cluttered with financial newspapers, a computer displaying stock market news, and a 'Stock Expert' certificate on the wall, all suggesting the setting of a professional stock analyst. The overall mood is humorous, emphasizing the irony of the expert's incorrect prediction.

In today’s collision between AI and our world:

Snog, marry or avoid MSFT?
Brains with chips
Jacked Garfield

If that’s enough to get the stock chart screaming, read on…

AI Collision 💥 did we get MSFT wrong?

When I first launched AI Collision 💥 on 3 October 2023, it started from nothing.

That first post was sent to ten people, of which six opened and, in total, the post has just 175 views to date.

Today, the number of subscribers AI Collison has here on Substack is 1,640. About 55% of people open the email that is sent to their inbox. And our posts get around 2,000 views each.

So I know a lot of people view AI Collision but don’t necessarily subscribe to it. That’s cool. Hopefully one day they will. And if you read AI Collision but haven’t actually subscribed, please do. There’s some stuff coming for its verified subscribers.

Substack also has this cool “star” rating thing where the more someone opens our emails and shares our stuff, the more stars they get. The maximum is five stars.

Anyway, in the near future, AI Collision is looking at rewarding its most loyal readers, so keep an eye out for those things down the track – special perks for our five-star readers and those who share and refer others to our Substack.

That’s just a little intro to first say thanks for reading AI Collision. AI Collision is growing, but I always want to reach more people, so please share us with others or your social channels if you like how it’s done here at AI Collision 💥.

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The other thing that I did when I launched AI Collision 💥 was to have a couple of special reports that linked to the AI Collison welcome email when someone signs up.

Those reports are:

It’s that second report that I want to focus on here.

I suggest you read it. Just click the link above to check it out.

But if you haven’t, or if you already have, here’s the thing…

In it, the stock I’m talking about avoiding is Microsoft (NASDAQ:MSFT).

The thing is, Microsoft is doing great. Thanks to AI.

In fact, it just crossed the $3 trillion mark in terms of market capitalisation.

Incredible!

So why on earth would I say to avoid the company?

Here are a couple of the points from the special report:

This is a company worth US$2.4 trillion. In the last five years (during a period of rampant money-printing, incredibly low rates and a raging bull market) it has more than tripled in value. However, among some of the most energetic tailwinds in history… it’s only tripled in value. That’s not bad, but really, it’s also not extracting maximum potential from the significance of what the AI boom can deliver.
Therefore, there’s a strong argument that Microsoft has diminished growth potential. Microsoft’s size and market saturation limit its potential for exponential growth. The law of diminishing returns suggests that achieving significant returns on investment in a mega-cap company like Microsoft is probably unlikely.

Now, was I far off the mark?

Let’s look at the data.

Microsoft traded at $318 on 3 October. Today, it’s at $406. A tidy 27.6% gain.

But my point was the asymmetric-risk plays in AI that were in the market looked a bit more attractive than Microsoft in my view.

Take, for instance, a company like Super Micro.

Now, why would I say that? It’s deep in the AI game. The main reason isn’t that Microsoft is a bad AI company, but that opportunities to make better returns in other AI-related companies make more sense. And Super Micro Computer Inc. (NASDAQ: SMCI) is the perfect example of that.

Super Micro was trading at $280 on 3 October. And that’s after it was around $83 at the start of 2023.

Today, Super Micro is up around $512 at the time of writing. That’s an even tidier 82.8% gain. The key driver of that? Well, it’s AI, of course.

ASML Holdings NV (NASDAQ:ASML) is another. Trading around $570 on 3 October. Today, up around $868. That’s a 52.2% gain.

Here’s another just to reinforce the point.

Broadcom Inc (NASDAQ:AVGO). On 3 October, Broadcom was trading at $814. Today, it’s up at $1,208. That’s a 48.4% gain.

These are all big companies in their own right too. Super Micro’s market cap is $28 billion, and then ASML at $344 billion and Broadcom at $565 billion fall right into mega-cap territory.

So it’s not like we’re talking about penny-pincher stocks here. And that’s the thing about AI and AI stocks. It’s higher up the scale of size where we’re seeing the outperformance occur in stocks that are driven by AI tech.

While there are outsized gains (and much higher risk) in smaller companies, with AI, you can open the scale into companies that are already worth tens of billions to find outsized opportunity.

So yeah, Microsoft is still a great AI company. A 27% gain from a multi-trillion-dollar company is nothing to shy away from.

But for me, it’s still one to avoid, because if you’re looking at ways to make your AI dollar stretch further in your portfolio, then I think there are better ways to play it in the market

AI gone wild 🤪

Funny meme time…

This is funny because there’s an element of truth to it.

But I’m not here to dive into conspiracy theories or to question the motives of people like Bill Gates or even Elon Musk.

However, we have to take a moment to look at the fact that Musk has announced this week that his Neuralink project has reached some impressive new milestones.

According to Musk, the first human has now received the Neuralink implant and is “recovering well”.

That’s good. But also, WOW.

He went on to explain in another tweet that Neuralink’s first product will be called “Telepathy”.

He said in a tweet that it:

Enables control of your phone or computer, and through them almost any device, just by thinking. Initial users will be those who have lost the use of their limbs. Imagine if Stephen Hawking could communicate faster than a speed typist or auctioneer. That is the goal.

If you’re wondering what in the heck is Neuralink, well, it’s another one of Musk’s grand idea companies.

You can find its site here.

Its stated mission, though, is to “create a generalized brain interface to restore autonomy to those with unmet medical needs today and unlock human potential tomorrow”.

It’s ambitious. It’s wild.

And I wonder where it sits on the AI spectrum.

Is it AI at all?

I mean, it’s an artificial device directly implanted into a human brain – a living human, I might add.

So we’ve got the artificial part right and, I guess, the intelligence part. Or, at worst, it’s helping to restore a level of intelligence to a brain that may have diminished intelligence.

Note: intelligence in this respect includes the ability to control things like basic motor function.

So, from my view, yeah, it’s artificial intelligence. Which is also a reminder that AI, as it is often talked about, isn’t just restricted to text-to-image or video or deepfakes of Taylor Swift.

No, it’s a whole host of medical and health applications, its autonomous systems, its decision-making and data analysis on a level that humans can’t meet.

I’m fascinated by the application of AI in this way, and hopefully it’s as wild a game changer that we’ve seen in AI yet. Hopefully it opens up some investment doors too in this very specific arena.

We’ll wait and see.

I am also curious what you think here too.

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

man in black suit jacket and black pants figurine

Boom 📈

Cyngn (NASDAQ:CYN) up 43%
Amesite (NASDAQ:AMST) up 18%
Microsoft (NASDAQ:MSFT) up 2%

Bust 📉

Tesla (NASDAQ:TSLA) down 9%
BigBear.ai (NASDAQ:BBAI) down 13%
iRobot (NASDAQ:IRBT) down 23%

From the hive mind 🧠

Not one, not two, but three trillion dollars. That’s the market cap of Microsoft now. The company does a lot of different stuff, from devices to software, cloud, etc. It’s said that AI is driving its performance now. The only question is: where does it end? Does it end?
Sports Illustrated got into a lot of trouble (and eventual failure) thanks to its sneaky use of AI. Now the New York Times is very publicly looking to use AI in its operations. Are they trying to take themselves out? Or perhaps just keeping their enemies closer?
While on the subject of Microsoft, it just released earnings too. Check out what’s driving the masses of money it’s making this quarter.

Artificial Polltelligence 🗳️

There’s been some discussion in the Southbank Investment Research offices this week about the things that worry investors.

For instance, some people are worried that tech like AI will mean their jobs are at risk and that AI might mean it’s harder to make money from the market in the future.

We all have worries and concerns about life and about investing. But thinking about the investing side of things, I wanted to ask you what your thoughts are.

AI Collision 💥 is changing its format a little here and posting an open question. Your answers will be private, but it will help me to figure out what I can cover, write about and publish to help with those worries and fears.

Click the image and it’ll take you to a SurveyMonkey page (Substack doesn’t do open questions it seems) and I’ll collect the responses.

If you want us to publish your answer or any questions you might have from it as well, make sure to let me know in your response. Otherwise, all answers will remain private.