Microsoft (MSFT) shareholders got another reminder this week that even the biggest tech players are watching expenses but are pouring billions into AI investments. The company's social network site LinkedIn is reported to be shutting down its research and development center in Israel and laying off nearly all the center's roughly 50 employees. The Tel Aviv center opened only in 2022 when Microsoft acquired the Israeli analytics startup Oribi for an estimated $80 million to $90 million and incorporated the company's technology into LinkedIn Marketing Solutions.
This number laid off is small compared to Microsoft's huge workforce, but the timing is rather interesting. On the one hand, Microsoft is increasing the budget for AI infrastructure. But on the other hand, the company is trying to find areas where expenses can be cut.
That is why the move to shut down the LinkedIn center is not so much a signal about the lack of demand, but an example of resource allocation by Big Tech. A $210 Billion Reason to Buy AMD Stock Here CoreWeave vs Nebius: Both Companies Reported Strong Earnings, But Here's the Stock You Should Buy As Oracle Deepens Its Partnership with AWS, Here's How You Should Play ORCL Stock Get exclusive insights with the FREE Barchart Brief newsletter. Subscribe now for quick, incisive midday market analysis you won't find anywhere else.
The American multinational technology corporation Microsoft Corporation, headquartered in Redmond, Washington, provides products and services that cover cloud computing, enterprise software, productivity applications, video games, advertising, and AI solutions. With a market capitalization of approximately $3.69 trillion, Microsoft is still one of the most valuable publicly traded firms in the world. MSFT stock trades at about $485, which is approximately 12% lower than the 52-week high of $553.72 and nearly 39% above the 52-week low of $349.20.
At the same time, the S&P 500 Index ($SPX) is up by approximately 14% year-to-date (YTD) as of Aug. 17. Microsoft's valuation leaves little space for any mistakes. The stock is traded at approximately 25 times forward earnings and 11 times sales.
These are rather expensive valuations, but Microsoft's 40.3% profit margin and 32% return on equity explain why such valuations are acceptable. What is much more important, however, is that Azure and AI are still driving growth. It should also be noted that the cuts in LinkedIn will be better understood considering the performance of the business.
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