Capital Lab for Edge Investing
Capital Lab for Edge Investing
Microsoft (MSFT) has been in the news lately, and not always for the reasons they might prefer. We've seen Fed governors hinting at rate cuts, Alphabet (GOOGL) briefly snatching the market cap crown, and whispers about AI spending. Let's dissect the numbers and see what's really going on.
First, the Federal Reserve. Christopher Waller's comments about a potential December rate cut sent a ripple through the market, boosting tech stocks like MSFT. The logic is straightforward: lower rates make long-term growth stocks more attractive. Investors, hungry for yield, pile into names like Microsoft. But how much of Monday's 0.40% gain (closing at $474, to be precise) was actually Waller, and how much was just market noise? Hard to say, but I'd wager the impact is overstated. Rate cut speculation is usually baked into these valuations months ahead of time.
The real question is, does a quarter-point rate cut fundamentally alter Microsoft's trajectory? Probably not. It's more about sentiment than substance. It's like giving a marathon runner a sip of water in the last mile – refreshing, sure, but not a game-changer.
Then there's the market cap flip. Alphabet briefly surpassed Microsoft, reaching $3.58 trillion compared to MSFT's $3.52 trillion. This headline-grabbing event was fueled by Alphabet's impressive 59% stock surge this year, driven by strong Q3 2025 results (revenue at $102.35 billion) and positive sentiment around their Gemini 3 AI model. The cloud unit grew 34% to $15.16 billion. Oh, and Berkshire Hathaway took a $4.9 billion stake.
Meanwhile, MSFT slipped about 12% from its late October high, trading near $478. Is this a sign of Microsoft faltering? Not necessarily. According to Alphabet (GOOGL) Overtakes Microsoft (MSFT) as Market Value Climbs to $3.58 Trillion, Alphabet's market value climbed significantly.
Consider this: market cap is a snapshot, not a trendline. A single day's trading can shift the balance. Microsoft's temporary "loss" of the top spot is more about Alphabet's recent gains than any catastrophic failure on Microsoft's part. (Though, I will admit, the optics aren't great.)
What truly interests me is the reasoning behind Microsoft's dip. The article mentions "investors moved to value stocks" and "wary of high spending on new systems." That's where the real story lies.
Microsoft's heavy investment in AI – projected to reach $35 billion for the quarter – is raising eyebrows. Azure grew 37%, which is solid, but some investors are clearly questioning the return on that massive AI spend.
This is the crux of the matter. The market is forward-looking. It's not enough to spend money on AI; you need to show how that investment translates into tangible profits. Are these AI initiatives generating enough revenue to justify the expense? And this is the part of the report that I find genuinely puzzling. They are not transparent about it. We need to see detailed breakdowns of AI-related revenue streams versus AI-related costs.
This isn't just about Microsoft. The entire tech sector is wrestling with this AI dilemma. NVDA is sitting pretty at $5 trillion, but even their valuation hinges on the continued exponential growth of the AI market.
Amidst all this market cap jostling, Microsoft quietly released Fara-7B, a small language model designed for computer use. This model, they claim, can automate web tasks and even run directly on devices.
The promise is compelling: a more efficient and private AI agent. Fara-7B supposedly achieves state-of-the-art performance within its size class, rivaling larger models. They trained this version of Fara-7B on a dataset of 145,000 trajectories consisting of 1 million steps covering diverse websites, task types, and difficulty levels. (The number of steps is impressive, but what was the error rate?)
But let's be realistic. Fara-7B is an "experimental release." It's still prone to errors and hallucinations. We're a long way from a truly reliable AI assistant that can handle complex tasks without human intervention. The success rate on WebVoyager, as independently evaluated by Browserbase with human annotators, was at 62%. More information on the model can be found in Fara-7B: An Efficient Agentic Model for Computer Use.
The daily market cap fluctuations are a distraction. The real story is about the underlying fundamentals: AI spending, revenue growth, and the ability to deliver tangible results. Microsoft's future hinges on its ability to turn its AI investments into real profits. Until we see concrete evidence of that, all the market cap shuffling is just noise.