In the AI age, ‘slow and steady’ doesn’t really win

Every tech company right now is being judged on the delicate dance between industry transformation and business preservation. This week we got a better read on how CEOs are weighing risk against long-term ambition. Take Microsoft. For the first time ever, it posted a $50 billion quarter in cloud revenue, up $10 billion from a decade ago. But that growth wasn’t good enough for Wall Street, and yesterday’s stock drop wiped out $357 billion in value, its steepest fall since 2020.

Sure, there are jitters about an AI bubble. But the real worry is that Microsoft isn’t moving fast enough to blow up its own core services — namely, Office 365 — and turn them into some kind of magical AI experience (remember Bing chat?). If Microsoft cedes its grip on the corporate world, it becomes a data center and cloud services provider with thinner margins and a shallower moat.

And then there’s Meta, which said it would double AI infrastructure spend to $135 billion. You’d expect investors to freak out a little in the absence of a straightforward plan to make money on all that compute, but shareholders rewarded Meta with a 10% stock pop.

The most extreme version of managing through this paradox of change is Tesla. On Wednesday, Elon Musk said the company was ditching its iconic Model X and Model S cars to clear factory space for humanoid robots. He also said the company would funnel $2 billion from Tesla’s balance sheet over to xAI.

Musk recognizes that making cars is a crappy business in the AI era, especially when China is willing to subsidize them and flood the market with cheap alternatives. It’s the on-board software that turns cars into revenue-generating robots that represents the value.

And once you realize you’re a robotics company, it really makes no sense to waste time — or precious factory space — on a business that may soon be obsolete.

As Microsoft and Meta try to ride the AI wave while carefully managing how their core businesses transition, Musk is already living in the future — and letting shareholders know they can either jump on board or see themselves out.

There’s no risk-free option. Tesla’s stock dropped after the news, reflecting the risk in that strategy. Humanoid robots and autonomous cars could end up taking significantly longer than Musk hopes, and the company is facing stiffer competition than, say, Tesla and SpaceX did when they were getting started. But the slow and steady approach taken by other tech companies will only work for so long.