In Greek mythology, the worst thing you could do was defy the gods.
The offense was so serious it rated its own special word: hubris.
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Icarus thought he could fly close to the sun. Narcissus rejected the advances of Echo and was cursed to fall in love with his own reflection. Oedipus ignores a prophecy, and we all know how well that turned out.
Today we use the word to describe excessive pride, and Satya Nadella makes sure to keep his guard up.
“From ancient sort of Greece to modern Silicon Valley there’s only one thing that brings civilizations, countries and companies down, which is hubris,” Microsoft’s (MSFT) chief executive said in a recent podcast interview.
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Nadella recalled the first day that the Redmond, Wash., software giant became the largest company by market capitalization.
“I remember walking around the campus — all of us including me — we were all strutting around as if we were the best thing to humankind and it is all our brilliance that’s finally reflected in the market cap,” he said. “And somehow it stuck with me that ‘God, that is the culture that you want to avoid.'”
Nadella credits his wife with introducing him to the psychologist Carol Dweck’s book on developing a growth mindset.
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Microsoft CEO Nadella encourages learning
He said that he encouraged his people to go from know-it-alls to learn-it-alls.
“It’s a destination you never reach because the day you say ‘I have a growth mindset’ means you don’t have a growth mindset by definition,” he said.
The tech world has been suffering through a semiconductor shortage, but Nadella said during the interview that “I’m not chip-supply constrained.”
“We were definitely constrained in ’24,” he said. “What we have told [Wall Street] is that’s why we are optimistic about the first half of ’25, which is the rest of our fiscal year. And then after that I think we’ll be in better shape going into 2026 and so we have good line of sight.”
Microsoft is believed to be Nvidia’s (NVDA) biggest customer, and Nadella’s comments caused the AI-chip maker’s shares to fall.
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Nvidia’s GPUs power the integration of generative-AI models like OpenAI’s GPT into Azure, Microsoft 365 Copilot and Bing.
The company owns roughly 49% of artificial intelligence group OpenAI, which is credited with sparking worldwide interest in artificial intelligence when it released ChatGPT in November 2022.
Nadella, who joined Microsoft in 1992 and became CEO in 2014, discussed the so-called Magnficient 7, a group of giant-market-capitalization tech companies, including Apple, Google parent Alphabet, Amazon, Facebook parent Meta, Microsoft, Nvidia and Tesla.
“If you think about OpenAI, in some sense you could say it’s Mag 8,” he said. “I think the company of this generation has already been created, which is Open AI. In some sense it’s kind of like the Google, or the Microsoft for that matter, of this era.”
While he says the AI field is going to be very competitive, Nadella does not see a winner-take-all scenario.
“There is going to be fierce competition among the 7, 8, 9, or 10 of us at different layers of the stack,” he said. “And as I always say to our team, watch for the one who comes and adds to it. … I would say OpenAI is one such company which at this point has escape velocity.”
Microsoft shares are up 15.5% year-to-date. The company beat Wall Street’s fiscal-first-quarter earnings expectations in October, but the stock slipped after MSFT forecast slower-than-expected growth.
Big Tech spending big bucks on AI
Loop Capital analyst Yun Kim issued a research report on Dec. 23 that adjusted estimates for select software names.
The analyst raised the firm’s price target on Microsoft to $550 from $500 and affirmed a buy rating on the shares.
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Kim noted that the consensus estimates for the company over the next several years are artificially lower due to the sharp capital-spending investments needed to support generative-AI initiatives.
The analyst says Microsoft shares should command a much larger premium than its large-cap software peers.
Capital expenditure has been a major issue in the age of AI.
In the first half of 2023, Big Tech spent roughly $74 billion on capex, Fortune reported last month. Through the third quarter that year, that sum had moved up to about $109 billion.
In the first half of 2024, Big Tech spent nearly $104 billion, a 47% year-over-year increase. Through Q3, that sum had surged to $170 billion, up 56% from a year earlier.
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Microsoft and Amazon combined for $42.6 billion in capex in Q3 2024, with Alphabet maintaining its roughly $13 billion per quarter rate and Meta beginning to accelerate its spending.
During Microsoft’s earnings call, Chief Financial Officer Amy Hood said capital expenditures including finance leases were $20 billion, in line with expectations, and cash paid for PP&E, or property, plant and equipment, was $14.9 billion.
“Roughly half of our cloud and AI-related spend continues to be for long-lived assets that will support monetization over the next 15 years and beyond,” she told analysts. “The remaining cloud and AI spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals.”
Free cash flow was $19.3 billion, down 7% year-over-year, she said, “reflecting higher capital expenditures to support our cloud and AI offerings.”
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