Prominent software company, Microsoft, is planning on investing over $30 billion in capital expenditures in the upcoming quarter. They are racing to expand their cloud and AI capacity. Microsoft is currently in a good financial position with revenues up 18% from a year earlier along with an increase in earnings per share. Microsoft controls an impressive 80% of the worldwide market for desktop and laptop operating system software with its Windows products. This makes Microsoft an excellent example of a highly dominant oligopoly.

To keep up with both Amazon and Google, Microsoft is in a race to build capacity to train and run their AI models for their business and consumer applications. Microsoft’s Copilot applications are currently being used by over 100 million monthly active users. Google has more than 450 million monthly active users by comparison. Microsoft’s record-setting capital investments have coincided with workforce reductions. Since May, there have been more than 15,000 cuts. 

Discussion Questions:

  1. What are your thoughts regarding Microsoft’s decision to invest in over $30 billion in capital expenditures to help expand their cloud and AI capacity? 
  2. What economic considerations, such as cost-benefit analysis, market trends, and risk assessment, should an independent consultant evaluate when advising Microsoft on its $30 billion investment in cloud and AI capacity, and how might these factors shape strategic recommendations for maximizing profitability and minimizing risk?