Regulators won’t spoil Microsoft’s AI earnings party this week

Between tomorrow and Thursday, Microsoft, Alphabet, Meta, Apple, and Amazon are all set to reveal their latest quarterly results. Apple aside, each of these Big Tech giants is expected to announce record revenues. Given the unprecedented girth of the tech megacaps, there will be implications for the U.S. economy as a whole. But this week will also be notable for what it says about AI’s growing importance.

In particular, analysts expect Microsoft—which along with Alphabet is set to report after the end of trading on Tuesday—to deliver a whopping 15.8% increase in revenue, largely owing to its rollout of lucrative, OpenAI-powered Copilots for enterprise customers, and growing thirst for its AI cloud infrastructure.

Having briefly overtaken Apple’s market cap earlier this month, Microsoft repeated the feat at the end of last week. This time, Wall Street consensus has it that Redmond will stay ahead, thanks to generative AI.

However, while there’s no arguing that CEO Satya Nadella’s early bet on OpenAI is paying off, everyone should also keep an eye on regulatory developments that could threaten Microsoft’s growth in this arena. In fact, two reared their heads just today.

First, the Biden administration has proposed requiring cloud providers like Microsoft and Amazon to collect details of foreign customers that are developing AI applications using their services and to report suspicious activity to U.S. authorities. This cloudy spin on the banking industry’s “know your customer” rules is very much aimed at Chinese companies that might pose a national security threat. It doesn’t come as a shock, given that President Joe Biden told the Commerce Department last year to come up with such rules, but, depending on how it’s implemented, it could nonetheless have an impact on future revenues.

Meanwhile, remember that episode early last year when Italy’s data protection authority temporarily blocked ChatGPT over privacy concerns? Seems it’s not over yet. The investigation that the Garante began at the time has now concluded that OpenAI’s cash cow does indeed violate privacy in some fashion, and the watchdog has given OpenAI 30 days to present its defense.

It’s not entirely clear what ChatGPT’s alleged violations of the EU’s General Data Protection Regulation are—a Garante spokesperson suggested to me today that it may have something to do with the legal basis for OpenAI’s collection of training data, and a lack of transparency for those whose data was collected—but GDPR fines can run to 4% of global annual revenue, and it could well turn out that Europe’s privacy regulators force OpenAI to make big changes, impact TBD.

None of which will spoil this week’s party, of course. More news below—and make sure to check out Michal Lev-Ram’s feature on the dirtiness of the chip industry.

David Meyer

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NEWSWORTHY

Amazon drops iRobot. EU regulators strike again! Their opposition to Amazon’s $1.4 billion takeover of vacuum-cleaner outfit iRobot has led Amazon to drop the deal. As a result, CNBC reports, iRobot is laying off 31% of its workers (so, around 350 people), and CEO Colin Angle is also out. The European Commission had been concerned that Amazon would use its marketplace to disadvantage iRobot’s competitors.

Taylor Swift searches. The saga around those explicit Taylor Swift deepfakes running rampant on X continues. Now Elon Musk’s platform is blocking searches for “Taylor Swift” as a temporary measure—however, as The Verge reports, the block is very easy to bypass. Meanwhile, 404 Media reports Microsoft has added new protections to the Designer tool that was allegedly used to make the deepfake images. Also, with X CEO Linda Yaccarino shortly set to testify before the Senate Judiciary Committee on online child safety, Musk—who famously rolled back content moderation—is now planning to set up a new, 100-person-strong content moderation office in Austin.

ON OUR FEED

“While Apple has behaved badly for years, what they did yesterday represents a new low, even for them.”

—Spotify CEO Daniel Ek joins the chorus of outrage over Apple’s changes to the iPhone’s app ecosystem model in the EU. Forced by a new antitrust law to allow third-party app stores on iOS, Apple is demanding a fee for installations of popular apps whose developers embrace those new channels. Ek said Spotify would be forced to stick to the status quo if the EU approves Apple’s move.

IN CASE YOU MISSED IT

Let’s talk about why Elon Musk needs $6 billion for xAI, by Allie Garfinkle

Canon, best known for its cameras and printers, wants to undercut ASML and its $150 million chipmaking machines, by Lionel Lim

India’s population speaks over 100 languages. Microsoft thinks AI can bridge its linguistic gaps, by Nicholas Gordon

Western EV makers underestimated the threat from Chinese rivals like Tesla-slayer BYD: ‘There was a view that it would only be Game of Thrones battles within China,’ by Christiaan Hetzner

U.S. to announce big grants for domestic chip plants in March, speeding up plans for Intel and TSMC, by Bloomberg

Apple veteran instrumental to iPhone development leaves for electric-vehicle maker Rivian: ‘Now is the time for me to move on,’ by Bloomberg

X partners with MGM’s sports betting division to integrate sports betting statistics into the platform, by Kylie Robison

BEFORE YOU GO

SLIM unshaded. SLIM, the Japanese lunar lander that recently made a soft landing but apparently without functioning solar cells, is working after all. The Japan Aerospace Exploration Agency (JAXA) said last night that it was back in communication with the craft—which landed upside down; oops—and the cells were working again, thanks to light hitting them from a different direction.

SLIM has already sent back a new image (don’t set your expectations too high) of a rock that the Japanese space agency is calling the “toy poodle.” Other nearby rocks, which SLIM photographed shortly after landing but before it was turned off to conserve power, are nicknamed “bulldog” and “St. Bernard.”