Microsoft made an eye-catching announcement on Friday January 3, 2025.
The press release poured cold water on dubious theories that massive investments in the 2nd Industrial Revolution driven by onset of Generative Artificial Intelligence might be ready to move to the proverbial rear view mirror.
Satya Nadella, the brilliant CEO who took over Microsoft’s leadership after his predecessor Steve Balmer squandered shareholder’s capital at an exponential rate for many years, has delivered performance for Microsoft shareholders that has been literally off the charts. We’ll spare you a history lesson on Nadella’s brilliance. Suffice to say he is easily one of the five greatest leaders of the 21st century.
On the first Friday of 2025, Nadella announced that Microsoft will invest $80 billion in data centers in 2025 alone. What stands out regarding the Microsoft announcement is the fact that what Microsoft is doing is not an isolated case. By no means is Microsoft the only major company that has gigantic expenditure plans for increasing its computing power for the foreseeable future. There is NO doubt that Google, Amazon, Apple, Meta, and Oracle are only a few of the big players in a large list that includes hundreds if not thousands of companies that are committed to making investments necessary that will literally transform the business landscape as we know it.
The Microsoft announcement is completely consistent with the commentaries we have posted here. The announcement also confirms the assumptions we made in our three-part podcast series posted early in the 4th quarter of 2024: “A Rational Perspective on Investments.”
You can either listen to those three podcasts right here on this website or download them on all the major podcast platforms.The implications go far beyond the obvious to those who are at least taking a cursory glance at the investment playing field looking for big winners.
Per our discussion, in the three-part podcast series, particularly Part # 3 – “The Dawn of a 2nd Industrial Revolution,” the prospects for prosperity by top notch data networking companies remains intact, as does the prospects for a sharp rise in demand for electricity. Demand for innovative clusters of GPU semiconductors that enable faster computing speeds with major improvements in energy efficiency, should continue without interruption.
Farther downstream from the more obvious implications for wellhead demand in computing power, will be quantum improvements in the production of new software packages. The greater ease with which software programs can be produced using Generative A.I. applications will create sweeping changes for all sorts of software-based service companies.
Some previous big winners will find themselves competing with new and existing companies that are quicker to understand how to use Generative Artificial Intelligence while enjoying lower cost structures.
The morphing of previous winners into dead money or into outright losers will shock some investors who do not adapt their thought processes and previous assumptions, as the digital landscape undergoes the most powerful changes since the onset of 1) smart phones, 2) the opening of the internet, and 3) the mass production of personal computers.
The point here is simple. Satya Nadella is no dummy. His vision of the future has driven Microsoft to make forward-looking decisions as well as any high-profile corporation on the planet.
While the decision by Microsoft to invest $80 billion in data centers in 2025 alone is a staggering sum, it is merely a continuation of an existing trend. Yet it still represents a decision that reflects the best judgments by arguably the greatest CEO of the 21st century.
While the perceived NEED to make capital expenditure investments of this magnitude are sobering for Microsoft shareholders, they remain capital investments on a magnitude reflecting the ongoing shift to the 2nd Industrial Revolution we have been signaling to readers in most of the commentaries appearing on this site.
As the most dominant players of the Digital Age continue to plow hundreds of billions of dollars into computing power, the results will no doubt be decidedly uneven. It will be the insightfully nimble management teams involved in INFORMATION: 1) gathering, 2) storage, 3) retrieval, and 4) advanced utilization, that produces outsized returns for shareholders.
Less nimble and less capitalized companies will see cataclysmic changes coming, but will not have the insights, resources, or courage of their convictions, to make the right adaptive moves that produce the returns on equity necessary to produce rewards for stockholders.
Stay tuned as this story rapidly evolves.
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