Artificial Intelligence - a bubble? Pt. 3

by Dobromir Risov, January 2026

An evenly loaded container ship withstands big waves safely.

Introduction

I talk in part 3 on Artificial Intelligence bubbles about a well established giant in the tech world: Microsoft. In part 1 & 2 I reviewed two "young" companies, Nvidia and Open AI. Both companies are at the core of the AI sector (Artificial Intelligence - a bubble? ) and their business is massively exposed to any positive or negative developments in this sector. In part 3 I wanted to write about an established tech company and see how and what it does in the field of Artificial Intelligence.

Main

According to Wikipedia, Microsoft was founded in 1975 by Bill Gates and Paul Allen. Its current CEO is Satya Nadella while Bill Gates serves as technical adviser to the company. Microsoft headquarters are in Redmond, Washington, US. Its stock is publicly traded. The stock is member of the market index Nasdaq and S&P 500.  Microsoft employs more than 220,000 people in 2025.

History

During the first decade, Microsoft developed MS DOS, an operating system for computers. During the second decade, from 1985 onwards, Microsoft launched the first version of Windows and five years later the first Office package. It contained famous applications like Word or Excel. In the third decade starting in 1995 Microsoft entered the internet. It launched the Internet Explorer, a software to browse the internet. It also launched two new operating systems for Personal Computers (PCs): Windows 95 and Windows XP. During the decade ending in 2015 Microsoft added to its business portfolio Skype and Nokia through acquisitions. It launched also its own hardware line - Microsoft Surface. Also the company entered another new sector: cloud computing. Microsoft launched its cloud product Azure. That took place under a new CEO Satya Nadella. According to its Annual report (2025), Microsoft reports its results in three segments:

Key figures on business and investment

Microsoft and Artificial Intelligence

Own products Microsofts AI product is called Copilot. Copilot is not a large language model, as ChatGPT is. According to quick searches it is considered an “orchestrator”. I did not find information about the revenue of Copilot. Further research in the internet revealed a Forbes article from July 2025: there it is confirmed that Microsoft still does not reveal revenue generated with Copilot. It is said in the same article business customers prefer ChatGPT instead of Copilot. Which is contradictory to me as Copilot is considered an "orchestrator" rather than a direct competitor. Further, solely 16% have transitioned to a full version of Copilot. A monthly subscription for Copilot costs between 20$ to 30$. Further, Microsoft is developing a chip specifically designed for large language models – called the Maia. It is yet to be released.

Investments in AI Microsoft bought for 13 billion USD a 27% stake in Open AI in October 2025 following Wikipedia.  Considering Microsofts balance sheet of 619 billion USD (June 2025), the stake in Open AI is 2% of Microsofts total assets. Relative to its operating income, the investment in Open AI represents 10%. For Microsoft a 100% write off of the investment would not bother the sleep of its shareholders. However, when Open AI does well, Microsoft gets to keep almost 30% of the profits. How Open AI is doing at the moment read here Artificial Intelligence - a bubble? pt.2. Beyond the financials, a part of the deal is for Open AI to purchase Microsofts Azure cloud products for its own operations. Cloud products are used in various fields of businesses, one of them being recently Artificial Intelligence.

Microsoft stock price

This chart shows two graphs – black depicts the 3 year performance of Microsoft stock. Blue graph depicts the performance of the S&P 500 equity index. This is one of the indices Microsoft stock is member of.

Microsoft (black) stock performed better than the S&P 500.

Microsoft stock doubled in price over a three year period by the end of 2025 trading around 473 $. During the same period, its earnings went up by 40%. For comparison, had you bought the S&P 500 index for your portfolio, its price went up by 80%. Microsoft stock has a price earnings ratio of 33x or an earnings yield of 3%.

Summary

Microsoft has proven since its foundation some 50 years ago, to  enter successfully new markets. Its beginnings are in the operating systems and office products, and it has moved into other sectors – like gaming or cloud computing. Microsoft has three relevant business segments – each of them big enough to provide protection when one segment does poorly. Microsoft holds a 27% stake in Open AI. Microsoft has a very limited downside and a good upside in the AI sector.

Microsoft stock is not cheap. The stock performed by 20% better than the S&P 500. Also, the stock outperformed by 60% its underlying earnings. Is the stock a bubble?  No. The company has a deep and diversified business portfolio allowing it to absorb single negative events. Now, when you are looking for a course on personal investment check out the Courses (List). Analysing companies takes a lot of effort for full time working people. In this course I show two ways how to invest well in a time sensible manner.

Sources:

1.        Annual report 2025 https://www.microsoft.com/investor/reports/ar25/index.html

2.        Forbes: Microsoft´s Copilot revenue may trail Chat GPT and Anthropic -https://www.forbes.com/sites/petercohan/2025/07/03/microsofts-copilot-revenue-may-trail-chatgpt-and-anthropic/

3.        Wikipedia - https://en.wikipedia.org/wiki/Microsoft

4.        Barron´s - https://www.barrons.com

Frequently Asked Questions (FAQs):

1. Is Microsoft an AI company?

Microsoft became behemoth in the tech world many years before the notion of AI became popular. Yes, Microsoft bought a stake in the AI company Open AI. From Microsoft´s point of view the ownership is not decisive for its own continued success. Microsoft is a well diversified tech giant.

2. Is Microsoft a successful company?

Yes. Microsoft started in the 1970s developing and offering operating systems for PCs. Since then, Microsoft has successfully entered new markets. It currently reports in three segments: Business Processes, Intelligent Cloud and Personal Computing. All three contribute materially to the firm´s success.

3. How has Microsoft stock performed?

The price of Microsoft stock has doubled for the last three years ending December 2025. During the same period the earnings per share went up from 9.7$ to 13.7$. That is an increase of 41%. The stock price went up by far more than the earnings during the same period.

4. Does Microsoft offer a LLM software?

No. Microsoft´s AI product is called Copilot. Copilot is referred to as an “orchestrator”  rather than a large language model (LLM). It uses LLM but is not a competitor.

5. Is Microsoft a profitable investment?

It´s stock has gone up by 100% over the last three years. At the moment the stock trades at 30x its earnings. Put another way, the profitability is at around 3% when you buy as per December 2025.