Microsoft, Meta Reports Overshadowed By DeepSeek Menace

Microsoft's "helping customers unlock the full ROI of AI," Satya Nadella declared on Wednesday afternoon, when the company reported overall sales that topped estimates, even as Azure growth appeared to come up a little short. The question for investors isn't so much whether Nadella's customers are reaping the benefits of investments in AI, but whether Microsoft is. The company reported in the long shadow of DeepSeek, a Chinese AI startup which this month claimed some of OpenAI's innovations can

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11 thoughts on “Microsoft, Meta Reports Overshadowed By DeepSeek Menace

  1. Have any of you ever walked into a public restroom, say at an airport or stadium, and heard a symphony of flushing toliets?

    But I’ll give Nadella a nod of approval for focussing on their customers ROI from using AI. If that does not become widely evident, they themselves will never make enough money from this. Which, as you said, is no longer a forgotten point.

  2. Zuckerberg really went out of his way to praise dear leader there. I didn’t realize the last administration was holding him back by only allowing his company to double in value the last four years and trying to prevent people from dying due to misinformation.

  3. IBM CEO Arvind Krishna on the impact of DeepSeek:

    “We have been very vocal for about a year that smaller models, and more reasonable training times, are going to be essential for enterprise deployment of large language models. We have been down that journey for ourselves for more than a year.”

    “We see as much as 30 times’ reduction in inference costs using these approaches,” he continued. “As other people begin to follow that route, we think that this is incredibly good for our enterprise clients, and we will certainly take advantage of that in our business. But I believe that others will also follow that route.”

    But let’s all focus on how “they must have stolen this from our natve-born US software engineers. No way they could have figured this out themselves!”

  4. I watched a five-year-old episode of Frontline yesterday on the development of AI (“In The Age of AI”). The documentary began with China, and included a statement by Xi Jinping “that by the year 2025, they will have caught the U.S. in AI development, and by the year 2030, they will lead the world.” It sounds like they are right on schedule.

    One advantage China has is that their huge population, and intense state monitoring of all its citizens, internet traffic and social media, gives them a much larger data set to work with. Potentially four to five times as large. Paraphrasing from the documentary: if data is to be a new commodity such as oil, then China is the new Saudi Arabia. It caught my attention. That Chinese data set is likely mostly unavailable for our American AI platforms to learn from. (I am not certain how much useable data either American or Chinese companies are able to glean from Europe or the rest of the world.)

  5. MSFT’s explanation of the admittedly slight softness in Azure was confusing (what is a “scale motion”?). Customers “trying to balance how do you do an AI workload with continuing some of the work they’ve done on migrations and other fundamentals” is a little worrisome considering that non-AI remains the vast majority of Intelligent Cloud revenue. That segment’s gross margin was down -400bp and operating margin -200bp, attributed to higher infrastructure cost. When asked to re-affirm guide of Azure acceleration in F2H, they deflected with talk about capacity constraints and waiting to see how the scale motions (? again) work. They said AI models “commoditize” and are keeping their infrastructure “fungible”. Twice mentioned their surge of capex so far has focused on long-lived assets (land, buildings, power) with a planned shift to short-lived assets (CPU, GPU) in 2026 with slower capex growth and watching demand signals – preserving optionality. Topline growth of +11-12% is very solid for a megacap (ahem, AAPL) but decelerating from the +15-18% posted during 2024. 3Q topline consensus goes down, EPS cons goes up, most of the former is FX but down is down.

    1. META growth strong, a slight accel from 3Q, and margin lift impressive (+800bp on EBIT!?). ARPP +15-16% YOY is not slowing down, supports view that of all the Megas, META is in the best position to benefit from AI in its own core business. Using proprietary silicon (MTIA) for core inference already, will replace some GPUs and expand usage in 2025 (nice for AVGO etc). Answered DeepSeek questions well, nicely wrapping self in the nationalist flag (the global open source AI standard must be an American one!), 1Q25 guidance looks doable, and analysts didn’t whinge about capex plans.

        1. Good question. The advertising on Facebook, as far as I see it, is transactional – some company selling products. Mostly Chinese, though often the company pretends to be Japanese or American or English. So sanctions on Chinese goods are a significant risk, I think. Until then, I imagine the companies can effectively track ad productivity and decide whether the price is worth it.

          1. Thanks JL I’ve maintained a FB presence mainly to keep up with some folks in the Japanese music scene and also a few high school friends and acquaintences.

            Perhaps that is why most of the ads I’m fed to seem to be from smaller vendors (Shopify people?) , though Temu does show up quite regularly if you ever intentionally or unintententially click on one of their ads. Plus from a vintage car vendor I do click on now & then to keep track of prices.

            But, for the most part, I’m not seeing a lot of ads from the brand behemoths. But I may not be a good sample.

          2. @derek I get a lot of mileage out of what I think of as “ad hacking.” Anywhere I know I’m going to be spending a lot of time online and can’t block or otherwise avoid the ads, I do a bunch of quick searches for things I wouldn’t mind seeing advertisements for, click a few links at random, and then I’m set. Now wherever I go on the internet, I see nothing but ads for Japanese chef’s knifes, Swiss watches, and tropical beach resorts.