Microsoft’s record high stock price was about more than OpenAI

Microsoft’s stock closed at an all-time high of $360 yesterday (Nov. 7), and Open AI is getting all the credit for it.

Earnings expectations for Microsoft and other tech giants

It’s understandable. The software giant’s stock rose for eight days straight—a streak it hasn’t witnessed since 2021—and touched record highs after a slew of announcements around better tech and lower pricing that OpenAI made during its first developer event on Nov. 6. Microsoft CEO Satya Nadella, who made a brief appearance, said “We love you guys,” and OpenAI CEO Sam Altman cheered that the two “have the best partnership in tech.”

OpenAI, in which Microsoft has invested $13 billion and counting, is the most obvious boost to the brand, leveling up the Azure cloud-computing platform, enhancing the Bing search engine, and embedding it into Microsoft 365 software. But OpenAI isn’t the only engine behind the legacy tech giant’s stock surge. Microsoft’s financial results are robust—it already had a suite of offerings AI could improve and enhance, and it took over a big video game maker recently.

“With so many things working in its favor, there’s every reason to believe that the bull run in Microsoft’s stock has only just begun,” Joel Baglole, a financial blogger for InvestorPlace, wrote.

Charted: Microsoft’s stock reaches all-time high

Microsoft Azure is playing catch-up with Amazon Web Services

The undisputed market leader in cloud services has been and remains Amazon Web Services (AWS), which capturing 32% of the market. However, Azure is its closest rival with a 22% market share.

Even before OpenAI launched a year ago, the cloud computing platform had things working in its favor. Already, several businesses preferred Azure over AWS. “One of the main reasons why Azure is so popular is that a massive percentage of large and small businesses rely on Windows and Microsoft software,” IT services firm IntelliSoft noted in an August blogpost. Plus, the company keeps making upgrades to offerings.

Having launched in 2004, AWS has a first mover advantage. Azure came much later, in 2010. AWS has a more extensive user base and boasts of a high-profile customer roster, including Netflix, Samsung, Airbnb, and others. Microsoft’s clients aren’t any less impressive—Starbucks, Apple, HP, and more use Azure.

Because Azure has plenty of room to grow before it scales to AWS proportions. Microsoft posted 28% growth in Azure in the quarter ended Sept. 30, well ahead of consensus forecast for growth of 25% and more than double the 12% growth AWS posted.

Company of interest: Activision Blizzard

After much conflict, contemplation, and conversation with regulators around the world, Microsoft finally sealed the deal with gaming giant Activision Blizzard. Acquiring the Call of Duty and Candy Crush maker is a gamechanger for Microsoft’s Xbox division.

On the surface, the Activision acquisition gives Microsoft access to big-name games, the support of hundreds of millions of gaming loyalists, and a baked-in time-to-market jumpstart, Wharton management professor Harbir Singh said on the Wharton Business Daily radio show.

But Microsoft, which is often viewed as a clunky, enterprise-oriented, hardware brand, also needed some cool points. For one, Activision lends it an established name to gain a stronger foothold in the entertainment space. Secondly, the purchase moves the conversation around Microsoft beyond desktops to mobile platform, cloud, and streaming.

Quotable: AI could also spell Microsoft’s downfall

“If we enable or offer AI solutions that have unintended consequences, unintended usage or customization by our customers and partners, or are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience brand or reputational harm, adversely affecting our business and consolidated financial statements.

—Microsoft in an October regulatory filing 

One more thing: Microsoft’s tax problem

The IRS has ordered Microsoft to pay $28.9 billion in back taxes, plus interest and penalties, for the years 2004 to 2013. After a decade-long audit, the IRS has poked holes in “transfer pricing,” which refers to the way Microsoft allocated profits among countries and jurisdictions. It accused Microsoft of unlawfully circumventing the US tax rate and moving profits to tax havens.

Microsoft disagrees with the math, saying its off by at least $10 billion, if not more.