Microsoft has just made an interesting point that challenges Michael Burry’s worries about AI stocks. Burry, known for predicting the 2008 financial crisis, recently claimed that tech companies are not accurately reporting how quickly their GPUs lose value. This, he argues, allows them to artificially inflate profits.
During a recent discussion, Microsoft’s Chief Financial Officer, Amy Hood, addressed concerns about whether the company could earn enough revenue from its hardware over its typical six-year lifespan. Her answer was revealing.
Hood explained that most of the capital Microsoft is investing in GPUs is already booked for their entire useful life. Essentially, they have guaranteed contracts that ensure these chips will make money for as long as expected, if not longer. This news is a boost for big tech companies spending heavily on these GPUs, but it’s especially reassuring for smaller cloud businesses that rely on these chips for their revenue.
For context, CoreWeave, a smaller cloud provider, has shared similar insights recently. Its CEO Michael Intrator highlighted that when contracts for their GPUs were close to ending, customers chose to renew them at prices only slightly lower than before. This suggests the value of these processors remains strong.
Interestingly, data from Silicon Data shows that rental rates for H100 GPUs have increased since late last year, indicating a stable demand in the market.
However, there’s a catch. A significant portion of Microsoft’s GPU contracts come from OpenAI, which currently accounts for a hefty 45% of its future performance obligations. This heavy reliance on one customer raises questions about stability. If demand falters or customer needs change, it could pose a risk, much like what Oracle has experienced with similar client concentrations in the past.
In a world where AI technology is accelerating quickly, understanding these dynamics is essential. The balance between solid earnings and potential risks will shape the future of AI investments. For now, Microsoft’s insights suggest a promising outlook, but it’s crucial to keep an eye on customer dependencies in this fast-paced market.
For more detailed information on AI trends, you can refer to sources like McKinsey & Company or recent tech reports from Gartner.
