Microsoft says Bing and Edge are profitable, but now admits it lost half a billion dollars from its AI investments and will continue to lose billions

Amazon, Google, and Microsoft have all launched a spate of AI products over the last 18 months including Generative AI chatbots, AI tools for programming software, AI tools for working with data, AI powered image apps, and more, and while these products have been popular, they are incredibly expensive to operate.<br><br>That’s why there have been rumors that Microsoft and other companies are now slowing down their Generative AI plans. Microsoft, for example, recently said it was going to be more patient about using its AI investment fund built from OpenAI after it misestimated how quickly it would make money from its AI investments.<br><br>That’s also why there have been rumors that Microsoft was going to lose billions of dollars from its AI investments, which would have been a dramatic and unexpected turn of events for a company that just over a year ago said Google DeepMind was a money pit.<br><br>Now, Microsoft has confirmed that not only did it lose half a billion dollars from its AI investments in Q2 2023, but it will continue to lose billions of dollars from its AI investments in the future.<br><br>“Investments in AI, while profitable for us, contribute meaningfully to our corporate and other loss and will do so for the foreseeable future. In Q2, these investments reduced our overall profitability by about 83 cents,” Satya Nadella, Microsoft’s CEO, told analysts during the company’s earnings call.<br><br>He added:<br><br>“AI is an investment area that will result in a headwind to our overall corporate and other gross margin. And you can see that we've gone from a gross margin of 95%+ to a gross margin of 93.9%.<br><br>This headwind built up over the course of Q2, and we can expect that AI investments, while profitable for us, will continue to contribute meaningfully to our corporate and other loss, and will do so for the foreseeable future. And you can see that from the guidance that we've given.”<br><br>Microsoft’s CFO Amy Hood also warned that the company’s “corporate and other gross margin will decline further in Q3 and Q4.”<br><br>Rumors are rife that cloud rates of $5-7 per 1000 chatbot queries undercharge cloud customers for using AI software, with some estimating that the true cost of a Generative AI query is 15-20 cents. Generative AI and other AI investments are also said to be responsible for a 70% rise in electricity bills, a rise that the company will likely not be able to offset over the next few years.<br><br>While Microsoft has admitted it’s Generative AI investments have cost it half a billion dollars so far, it has said its new Bing search engine is profitable and its Edge browser is also profitable.<br><br>“Bing is now profitable and has seen an increase in profitability during the quarter. We're seeing a slight increase in our usage share, and that is driving more usage and more usage is driving more revenue, and so we feel good about that,” said Brett Icahn, Microsoft’s Chief Financial Officer.<br><br>Edge is also profitable, with Icahn saying:<br><br>“Edge browser continues to be profitable, and it's a major platform for us. And we're seeing a lot of success there, and I think that's driving usage and revenue growth and profitability growth for us.”