Techin' Geek

Microsoft is in a unique position as AI overtakes the tech industry. It’s one of the world’s largest cloud providers and software-as-a-service companies, while also holding valuable stakes in the two biggest AI labs, OpenAI and Anthropic.

Those incentives are starting to clash as Microsoft posts blockbuster financial results. The company just reported an extremely profitable quarter with $90 billion in revenue and net income of $35.8 billion. For the fiscal year, which ended June 30, Microsoft reported $331.8 billion in revenue with a net income of $133.7 billion for the year.

And CEO Satya Nadella is not about to let the trajectory of Anthropic and OpenAI — which are expanding into applications and agentic infrastructure that could ultimately let them own customer relationships — derail that kind of cash.

Nadella has been preaching to enterprises to use multiple models and to stop relying on the frontier AI labs for the agentic harness/app layer.

Doing so is dangerous, he’s been saying, because it requires companies to share too many of their internal secrets with model makers of dubious trustworthiness. He knows his customers. Enterprise IT fears both data leaks and being locked into a vendor.

Now he has openly told Wall Street analysts during the company’s quarterly conference call Wednesday that this is an opportunity for Microsoft to sell customers its own homegrown models, alongside agents, AI security and more, while promising lower costs.

In other words, he’s pitching Microsoft as an alternative to many of the upscale services that OpenAI and Anthropic are developing for their own growth.

When UBS analyst Karl Keirstead specifically asked Nadella to weigh in on the open vs. closed-sourced debate roiling the AI industry, and how Microsoft will benefit from it, Nadella came out swinging.

“The goal is to have the firm be in control of their own destiny,” the CEO said of enterprises. “We are very, very clear about the architectural sort of design of the platform, which is you got to keep your harness separate from the model … that means any model at any given time is swappable.”

Microsoft, of course, sells a menu of harnesses (aka AI agents), too, under the Copilot name, including its coding agent GitHub Copilot. Coding agents are where much of the AI dollars are being spent today.

And he used the high-profile incident from last week as proof of his warnings.

“If you look even at the Hugging Face incident, the biggest thing that we should take away from that is you can’t sort of depend on any one model,” Nadella said. “You will maybe need multiple models to even remediate some challenges that get caused by one model. Like that’s the way to think about it, right? Which is you can’t be subject to a refusal of one model.”

The incident involved an unreleased model from OpenAI breaking out of its sandbox and successfully mounting a full-scale hack on Hugging Face, all in pursuit of besting a benchmark. Trying to understand what happened, Hugging Face at first tried to use a private frontier model (which it hasn’t named) that refused to help it. So it turned to the Chinese open-source model Z.ai GLM 5.2 to analyze logs and defend its infrastructure. The incident has so shocked the industry that even Sam Altman is now saying that maybe AI development should slow down a bit.

Nadella also made clear that Microsoft is happily selling its own homegrown models, the MAI family, on its own homegrown AI chips, Maya, and pitching them as cheaper alternatives.

“Every customer wants the right model for each task based on quality, latency, cost, and compliance. We offer the broadest model catalog in the cloud with over 11,000 models, including the leads from OpenAI, Anthropic, Mistral, xAI, as well as our own MAI family,” he said.

He added: “We’re also accelerating our own model development. We announced more than a dozen new models across image, voice, transcription, coding, security, including our first reasoning model, MAI thinking one, all with cost-efficient inference at the core for the enterprise use cases. We are co-designing these models with our silicon, and we are seeing 40% better performance per watt when running MAI models on Maya 200.”

As for Mythos? Nadella pointed to Microsoft’s new Mythos competitor announced earlier this week, MAI Cyber One Flash. It “achieves better performance than the much larger Mythos model, but at half the cost when combined with our multi-agent security harness,” he said.

Sure, the Microsoft CEO says that enterprises should use the frontier models that OpenAI and Anthropic offer in their mix. But his bigger message is: don’t trust them enough to rely on them.

Meta founder and CEO Mark Zuckerberg is trying to sell investors on his prediction for the future — one where billions of people will have their own personal AI agents in the next five years. (Let’s hope that future also comes with data centers efficient enough to power all those agents — without triggering a fresh wave of climate disasters.)

“I think that it’s extremely unlikely if you look out five years from now, for example — whatever period of time you want — that you don’t have billions of people with a personal agent that understands your goals and that is just working on your behalf 24/7 to achieve your goals in whatever the domain is that you care about,” Zuckerberg said on Wednesday’s quarterly earnings call with investors.

He added that he could see people using these agents to help them with their finances, health, interpersonal relationships, and household management.

“As we move toward a future where we’re all interacting with multiple agents, I think that WhatsApp and our other messaging surfaces are going to become increasingly important,” he said, noting that WhatsApp is already the leading platform where users interact with Meta AI.

Meta is not alone in setting high expectations for AI systems that can act on a person’s behalf rather than just answer questions. Google emphasized custom AI agents as a key new feature in its Search overhaul, which sparked outcry from users who felt bogged down by the constant onslaught of AI results on Google. Meanwhile, subscriptions to Anthropic’s Claude have skyrocketed as engineers fawn over the agentic coding assistant Claude Code.

Compared to its competitors, however, Meta may not enjoy as much confidence from investors as it continues dumping cash into innovative projects that may or may not pan out — Meta’s stock dropped almost 10% after posting this quarter’s earnings. Meta’s Reality Labs, the organization responsible for its AR glasses, VR headsets, and related software, lost around $4.6 billion this quarter, roughly in line with the losses the division has posted each quarter since 2021. That’s a running total now of around $88 billion.

Meta’s AI spending is likely to climb even higher, which is more of a concern at this juncture. The company reported free cash flow of $784 million this quarter, down from $8.55 billion the same quarter last year. That’s a 91% drop year over year, exacerbated by the company’s investments in AI infrastructure. This week, Meta and BlackRock announced a partnership to build a $14 billion data center in El Paso, Texas.

“We believe that there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly, but we think that there’s a big opportunity, obviously, to sell compute as well,” Zuckerberg said.

Ultimately, he believes that the personal agents that Meta is developing will be “the foundation for our next wave of products and revenue lines in the months and years ahead.”

So far, Meta’s business agents, rolled out globally on WhatsApp and Messenger this quarter, have been adopted by more than one million businesses. It may be harder to get people to adopt consumer AI agents, but the road to “billions” has to start somewhere — the company can’t get there on enterprise agents alone.

The largest electrical grid in the U.S. has struggled to cope with an onslaught of data centers. Now, after an auction to add more generating capacity fell short, the grid’s operator, PJM Interconnection, has said it will cut off data centers and other large users during power shortages.

The decision arrives as the breakneck pace of data center construction has grid operators scrambling to generate power. By 2035, data centers are expected to use 4x more electricity than they do today.

PJM won’t start curtailing supply until June 2027, and the cuts will only apply to data centers that are 50 megawatts or larger. The grid operator is running another auction for new generating capacity.

Similar to other demand response programs, which have existed for decades and typically include large users like manufacturers, the customers who have their power cut will be compensated. Such programs typically give customers advance notice, ranging from 30 minutes to a few days, depending on forecasted demand. 

The move will likely spur many new data centers — and potentially existing ones — to set up their own sources of on-site power. Those that don’t will probably rely on backup generators, which tend to be costlier to run and frequently more polluting. 

Many data centers favor diesel generators since the fuel is widely available and can be stored on-site. Federal regulations allow such generators to be used for up to 50 hours per year for demand response events, and up to 100 hours per year for events like emergencies and maintenance.

This week, Vantage Data Centers came under fire for its apparent coordination with Virginia environmental regulators to cast doubt on a report that said diesel backup generators could contribute to tens of millions of dollars in annual health damages for people living near a 96 megawatt data center in Northern Virginia.

PJM has come under fire in recent months for the way it has managed new generating capacity and large new users, including data centers. The grid operator’s territory runs from Virginia to Illinois, covering 67 million customers. Over the last year, wholesale electricity prices have nearly doubled, and PJM’s independent market monitor blamed data centers for much of the increase.