[coldpie]

Microsoft is a public company. That means their primary product is not products or services, it's their stock. Selling products & services can be an advertisement for their stock, but there are other methods of convincing people to buy their stock, too. Currently the stock market only wants stocks that have "AI" associated with them. It doesn't matter whether users like it or not, because having a viable business is not what the stock market is currently focused on. So, Microsoft is doing what they need to do to sell their primary product: shove AI into everything.

[brookst]

Are you saying they would rather double stock price than double revenue?

[Maxatar]

If you're someone who owns Microsoft, what option would you prefer?

1. Stock price remains the same but revenue doubles.

2. Revenue stays the same, but stock price doubles.

Assuming all else equal, and recognizing that this is absolutely a simplification, but if these were the two choices then it seems a no brainer that you'd go with option 2. Revenue is a means of increasing stock price.

[Marsymars]

I guess it depends on what kind of investor you are.

If you're holding MS stock long-term, and you plan to gradually shift away from equities as you near retirement and then gradually liquidate your holdings to fund your retirement, juicing the stock in the short term does nothing for you.

If you're holding short-term, then you also need to sell the stock after it gets juiced, so that you can move your capital to not-yet-juiced stocks.

[Marsymars]

Missed a point above - that for said short-term investor... that strategy doesn't actually work, since a "sell high buy low" strategy on individual stocks is outperformed by just holding ETFs long-term.

So really, which investors does short-term stock juicing benefit? Insider traders, I guess.

[brookst]

That’s like asking whether you’d rather have a pizza with the same diameter but twice the area, or a pizza with twice the diameter but the same area. It makes no sense.

Stock prices were, are, and will always be rough approximations of the NPV of future profits. It’s not perfect, of course, but it’s roughly true.

Doubling revenue in any remotely sustainable way will have way more than a 2x impact on stock price because of exponential growth. So yeah, as a stockhodler, you’d rather double revenue with flat stock price because you’d buy the crap out of the stock when you realize the market has not factored revenue growth in to pricing.

Imagining that public companies care about stock price more than revenue is literally like saying a hungry customer care more about pizza radius than area.

[5kh]

A long term investor would prefer 1. Most likely option 2 would shortly be followed by halving of the stock price. Option 1 lets someone buy shares in a company that is greatly undervalued and will lead to long terms gains.

[Maxatar]

I just think you are the other person who replied to me are making the same mistake, which is mixing the means of accomplishing a goal with the goal itself. This is a mistake I see a lot (especially in software development), where people get too attached to a specific means or method that they end up confusing the method itself with the actual thing that needs to be accomplished.

The goal for an investor is captured in the stock price itself. In programming terms, a corporation is a function whose output is its stock price/market cap, and revenue is but one of a host of inputs into that corporation that determines what the stock price is. Other inputs can be operating expenses, whether dividends are issued, future prospects for the company such as entering new markets etc etc... and you can have beliefs about how those various inputs affect the output or how these inputs change the output over time (short term vs. long term), that's perfectly fine... but when push comes to shove, the goal is not the revenue, it's not entering a new market, it's not reducing operating expenses... the goal is increasing the stock price (well technically the market cap).

[5kh]

You should look up the concept of value investing. If you can buy shares in an undervalued company do so.

[Maxatar]

That's precisely the argument I'm making. A company's stock price can be undervalued, which exactly means that the stock price can increase without any change in the company's revenue or profitability. The stock price can increase strictly because the actual value of the company has not yet been fully realized without any material change necessary on the part of the company.

As an investor, that's the ultimate goal of your investment.

[coldpie]

Sure. Decision makers are paid in stock price, not revenue. They would rather do whatever increases the stock price the most, with the least effort/expense.

[brookst]

If only there was some correlation between stock price and revenue…

[graemep]

Yyes, and prefer it to doubling profit or cashflow etc.

I have not looked at MS in particular, but generally that is what the remuneration of the people at the top of most public companies is most strongly linked to.

[pjc50]

Yes! Not least because doubling revenue doesn't cause the stock to double.

[saubeidl]

Maybe the stock market is not a good system to organize ones economy around then?

[cezart]

I've been thinking about this recently. The centrality of the stock market, while historically a great tool to allocate resources efficiently, might actually be a big weakness for the USA today. A capable adversary, like China, can kill entire strategic sectors in the US using the stock market. If they undercut the US companies and are willing to accept low returns on their investments, then the respective USA competition will be driven out of business by their investors, because there will be other sectors to invest in, with higher RoI. Do this at various points in strategic value chains, and over a decade or so it might kill entire verticals in strategic sectors, leaving the US economy vulnerable to any kinds of shocks.

[frickinLasers]

As someone who is essentially financially illiterate, what does this mean, "allocate resources efficiently?" Nobody's investing in companies that promise to cure world hunger or alleviate childhood suffering. They're investing in technologies that can extract the most wealth from the population, regardless of externalities. Is that desirable?

Then again, I can't fathom what people would be doing with their money if the stock market weren't there. I imagine they might naturally wind up with some sort of...stock market.

[Alsedarna]

The operating principle here being that prices are units of information, which in aggregate reveal some combination of market demand, present supply, production costs, etc. All else being equal, an investor who's looking to put an investment into a new business will try to find the best rate of return. The existence of a relatively higher profit margin for an industry suggests an unmet market need, and then directs the flow of capital into it (if you expect that for every $1 you invest into a roofing nail plant will return $1.25 over the next year vs a $2 return from a new insulin plant, more new cash will flow into the insulin plant, more insulin gets made, and if the investor guessed right about the demand for it, they turn a profit). In a sentence, money flows towards trying to give people what we think they want more of.

The theory posited above is that you could try to manipulate these signals as a sort of economic warfare. If you expect that every dollar you put into our aforementioned roofing nail factory will get you minuscule or negative return, nobody's going to want to invest in building/expanding nail factories, and they'll put their cash somewhere it can grow instead. This is all well and good so long as you've got happy trading relationships with people who can sell you nails, but if one day the nails stop coming--you've got a supply chain shock until you either open new factories or find someone else willing to sell nails to you. The theory here being that if you had a LOT of goods that became tied up in a single point of failure--someone forcing that failure could create a great deal of internal instability to be exploited for geopolitical ends.

[jfim]

That's what's meant by efficiency, it's allocating it to the place that has the highest return on investment.

As you point out, in practice what's efficient is what can capture the highest return, not necessarily the highest return per se. If say investing in education had high returns society wide but those returns couldn't be captured, that's not an efficient use of private capital.

[saubeidl]

As somebody doesn't consider himself a capitalist, wouldn't it be fair to say it is "the most efficient" in precisely one thing: capital reproducing itself?

And if so, why is that necessarily a good thing? Why should that be our goal as society as opposed to things like minimizing child mortality, increasing literacy rates, making sure we don't have a ton of our fellow humans living on the street in misery etc etc - things that make the lives of our fellow humans better? Why is capital growth the metric we have chosen to optimize for? Surely there's better things to optimize for?

Excuse the polemic, but infinite growth with no regard for anything else is the ideology of a cancer cell - and to me that is increasingly what it feels like when we are wasting all these resources on a dying planet just to make numbers go up.

[rcxdude]

Ultimately that money is made by people choosing to spend their money on something, because it helps them, because they like it, because they need it for whatever reason (real or imagined). That's what grounds the financial markets: eventually someone is buying a thing because they want the thing, and all the rest of it is basically just figuring out who can make the thing, how many people want the thing and how badly, and whether the stuff used to make the thing could make a different thing that people want more. Financial markets can depart from that reality for a while, but mainly because of a collective belief in some falsehood about the above (everyone really badly wants AI, right?).

Number go up infinitely is due to inflation and that's basically just an incentive to not hoard cash indefinitely, and instead use it for something useful. But the only thing that uses up is numbers. Everything else is because people, on average, want more stuff and are willing and able to work hard to get it.

(Of course, this generally means that the markets chase the desires of those who have something valuable enough. People who don't will be marginalised by this mechanism, for sure. And of course there's lots of opportunity for people to steal or abuse powerful positions in the market to the detriment of others. Which is why a free market is not the be all and end all of organising a society, and other organisational structures exist to regulate it and to allocate resources in a less transactional manner)

[jfim]

Optimizing for capital returns is a simplification of the real world, where it allows for comparing whether it makes more sense to put one's money into opportunity A or B.

There's a lot that's not captured by solely looking at dollars, like the examples that you bring up, such as quality of life, human welfare, and so on.

[cherrycherry98]

If you care about minimizing child mortality, increasing literacy, pulling people up out of poverty, you should be a capitalist, as it's empirically the best way to meet those goals. This seems to be a hard thing for many to understand or accept because it is largely a second order effect, the capitalist primarily concerned with their own personal gain but winds up improving the lives of others as a side effect.

This is the essence of Adam Smith's often misunderstood invisible hand metaphor. Of the individual he observed: "By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it." Second order effects stack up and improve quality of life for more people better than trying to do so explicitly.

Multiplying capital creates abundance and that abundance allows for improved standards of living for and the means to spend excess resources in support of charitable endeavors. Growth is good because it means more abundance and opportunity. I would argue that pursuit of growth is not an ideology but a force of nature. Life is opportunistic and will expand to wherever there is fertile conditions, and often adapt even when they are not. We are part of nature and understand this intuitively, seeking growth opportunities. As an example, one is better off being part of a growing company (more wages and opportunities) than one that is stagnant or declining (fighting for scraps and survival).

[FuckButtons]

We’re already there when it comes to having the industrial base necessary to fight a protracted conventional war with china. Which leaves a large ? over the US dominance over the pacific.

[mlsu]

Y-yeah. HYPOTHETICALLY, this is something an adversary to the USA might attempt to do, and it would really kneecap the US if they were successful.

But would only happen if USA decided to totally financialize all sectors of its economy and make a small set of oligarchic corporations THE load-bearing element of its strategic capacity, leading us to chase market returns even if those returns totally kneecapped our ability to build anything at all of actual value.

Good thing we haven't done that!

[wolvesechoes]

> while historically a great tool to allocate resources efficiently

Any empirical support for that?

[qweiopqweiop]

Do you need the stock market to undercut industries though? I'm not sure it's necessary

[fodkodrasz]

While not strictly necessary, it is a great power multiplier.

It helps as it is both a gauge of the success of the strategy, and also a lever where the process can be fine tuned, eg. slowly buying stock then strategically dumping in the right time, correlated with other external shocks can have wider effect to whole industries through controlling the public opinion on specific industries.

[Draiken]

> a great tool to allocate resources efficiently

Sorry but... WTF are you talking about?

It rewards self-destructive behavior in favor of short-term gains. Shareholders have *zero* commitment to the companies they buy shares from and will happily switch their entire portfolios on a whim. It's essentially people chasing the new shiny thing every single day.

Let's not forget it's a known fact that people with insider knowledge will profit over everyone else.

How is that efficient in any shape or form?

> If they undercut the US companies and are willing to accept low returns on their investments, then the respective USA competition will be driven out of business by their investors, because there will be other sectors to invest in, with higher RoI.

You're basically explaining one of the reasons stocks are a horrible idea for distributing resources.

It has nothing to do with whether or not it's central or distributed, it's merely the incentives they create. It's essentially Goodhart's law on steroids.

[cezart]

Depends what you compare it with. I grew up in the post soviet union. That system allocated resources to various monopolies who were too big to fail. Turns out allocating capital based on who can make things that people want/need to buy, and do it with a profit, multiplies said capital way faster. From this point of view, over time your initial base grows into all kinds of industries etc. That's probably why the USA won the cold war.

[TheOtherHobbes]

Until your economy congeals into various monopolies who are too big to fail, and you lose the rematch because you're so busy counting beans you stop paying attention.

[Draiken]

A bad system is still bad even if something else is worse.

> That system allocated resources to various monopolies who were too big to fail.

Like our banks today? Like OpenAI is trying to sell themselves as so the US government bails them out when they inevitably can't pay off their debts? Like all the other monopolies that are too big to fail?

I can't see the difference.

> turns out allocating capital based on who can make things that people want/need to buy, and do it with a profit, multiplies said capital way faster.

That assumes the stock market does that. It simply doesn't and history is proof. It's also a fact that free market capitalism has consistently done worse than before based on actual numbers.

I highly suggest you read 23 things they don't tell you about capitalism. It goes into a lot more detail and helps you understand things in a broader perspective.

If we want to improve our world we need to move past the faults of the current capitalist system and the soviet union. We need better incentives. Profit has proven to be too disconnected from actual value.

[1]: https://en.wikipedia.org/wiki/23_Things_They_Don%27t_Tell_Yo...

[saubeidl]

I'd argue the Cold War isn't over and the US is losing it right now with how their president grovels before the Russian one

[mrweasel]

The stock market weirdly enough ruins the idea of capitalism. Catering to shareholders hurts the idea that competition would create better and cheaper products.

[graemep]

Its not the stock market per se. The biggest problem is a lack of good regulation to ensure competition and the resulting drift of oligopolies.

The stockmarket enables that by making takeovers easier as you have a higher proportion of short termist shareholders who 1) fail to block value destroying acquisitions on one side and 2) jump at the chance to make a quick profit on the other.

[zem]

that's not the idea of capitalism; the idea of capitalism is that you should be able to make money by virtue of owning stuff. it's an inherently rich-get-richer scheme, competition has little to do with it.

[graemep]

I think its obvious the GP means free market capitalism, which is what almost everyone who favours capitalism thinks is the form it should take.

[Arainach]

The free market abhors competition. It's much more profitable to be a monopoly - and profitable enough by far to squash any competitors in infancy.

[graemep]

Capitalists abhor competition. Adam Smith (as in "invisible hand") pointed this out. That is a subversion of a free market.

[zem]

I don't see how free market capitalism fixes that. I looked up a definition to make sure I wasn't missing something and as per investopedia:

"The term “free market capitalism” refers to an economy that puts no or minimal barriers in the way of privately owned businesses. Matters such as worker rights, environmental protection, and product safety will be addressed by businesses as the marketplace demands."

it's basically worship of owning the means of production and not being regulated in its use, e.g. if you own a company you get to dictate all sorts of unreasonable things to your employees, and any benefits gained from automation accrue to whoever can afford the up front money to own the machines.

[graemep]

That is a bad definition and I cannot find it on investopedia. it is essentially an extreme libertarian spin on the definition.

There are better definitions on both wikipedia and Britannica:

https://en.wikipedia.org/wiki/Free_market_capitalism

https://www.britannica.com/money/free-market

Especially this hit:

https://en.wikipedia.org/wiki/Free_market_capitalism#Concept...

[wolvesechoes]

And these people has audacity to proclaim that socialism is based on fantasy.

[Draiken]

Talk about utopia huh?

Free markets never existed, don't exist and never will. Markets are defined by laws and regulations in which they exist in. They can't ever be "free".

[Lammy]

Relevant U.S. Constitution: https://constitution.congress.gov/constitution/article-1/#ar...

> “The Congress shall have Power… To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;”

[graemep]

I agree. A free market requires regulation to ensure competition otherwise it ceases to be a free market.

[graemep]

I assume the downvotes are because people do not know the difference between "free market" and "entirely unregualted market"?

Please get your definitions from someone reasonable (Adam Smith might be a good start) rather than Ayn Rand.

[TheOtherHobbes]

Applies globally.

[onraglanroad]

Competition creating better products isn't an idea that defines capitalism though: the same would apply to cottage industry.

Capitalism is defined by having the capitalist, who provides capital, and without the ability to sell their share of stock it's difficult to see what the value would be. So you kind of require stock markets.

Edit: which is why it's odd to call China communist. They have 3 stock exchanges. They're really a capitalist single-party state.

[larkost]

China uses Capitalism as a tool where the Party feels it would be beneficial (for the Party), and crushes it mercilessly when it gets in the way (other than this real estate problem they have right now).

In the U.S. we have mistaken Capitalism for a religion, and so it wags the dog, so to speak. Since our founding we have made some attempts at finding a balance between our use of the tools of Capitalism and socialism (in more the Democratic Socialism style, rather than the Communism style), and we had a good run in the decades after WWII. But starting with McCarthyism, and really picking up under Regan we have prided ourselves on adopting Capitalism as a religion, and it really shows up in both the income inequality as well as the increasing role of (and corrupting influence of) money in our politics/government.

[nolok]

It's basically the reason this bubble not only exists but has a chance not to pop : there is so much stock value in it that the big tech all want to keep feeding it, and they're sitting on so much cashflow they can afford to do it

It's absurd, but that's where it is. And a company like OpenAI basically hangs on it, because they have obligation almost ten time their revenue and the only way this does not deflate quickly is if others keep feeding it cash.

[hvb2]

> Microsoft is a public company. That means their primary product is not products or services, it's their stock.

Yeah that's a great business idea, ask Boeing how that's going

[coldpie]

Current CEO:

> Boeing spent about $300,000 to help Ortberg move to Seattle. His decision comes more than two decades after Boeing leadership decided to move company headquarters out of Seattle. Ortberg received about $18 million for the months he was the CEO in 2024.

https://en.wikipedia.org/wiki/Robert_Ortberg

Previous CEO:

> In 2022, Calhoun received $22.5 million from Boeing. Most of his 2022 compensation was in the form of estimated value of stock and option awards. He received the same $1.4 million salary as in 2021. ... In February 2023, Boeing awarded Calhoun an incentive of about $5.29 million in restricted stock units to "induce him to stay throughout the company's recovery". In March 2023, Boeing announced Calhoun was being given shares worth $15 million that will vest in installments over three years.

https://en.wikipedia.org/wiki/Dave_Calhoun

Seems to be going all right?

[hvb2]

Not referring to the CEO. I was referring to short term stock price and shareholders being your only customers versus the people buying your product

[coldpie]

Oh yeah it's absolutely terrible for the business and its customers.

[pjc50]

Works for Tesla, the absolute poster child for this kind of behavior. They can lose double digit percentage of market share in key places and still give the CEO a trillion dollars.

[watwut]

That is not what stock market is. A company does not have to focus on stock price and stock price is not its primary product.

[coldpie]

That's fair, I should reframe. The incentive given to decision makers at Microsoft is company stock. That means the primary focus for everyone who makes decisions at Microsoft is the stock price, which in turn means the stock price is the primary product for the company itself.

[_DeadFred_]

Name a major U.S. public company in recent years that has consistently prioritized improving its product over boosting short term stock price or extracting maximum profits. If capitalism were truly a healthy system about building strong products to create healthy markets, this should be the norm (and enshitification shunned), not the exception.

What we actually see is a system of chartered extraction. Corporate executives are like Norman lords, granted their 'title' (CEO of instead of Earl of) by shareholders (rather than a king) in return for which both are/were expected to extract maximum value by any means necessary. Extractive tactics often at the expense of long-term product strength are behaviors shareholders expect if the CEO is to keep their bestowed 'title'.

Don't forget the progenitor joint stock company The East India Company, Capitalism in it's purest form without government restriction. Profit-maximizing, absentee extraction, with company executives serving as quasi-feudal lords over assets and people. Modern corporate capitalism is hard to distinguish, in its structure,history, behavior, and incentives, from the Norman extraction system, it's just dressed in a more politically palatable wrapper and forced to mellow out from it's desired East India Company style final form.

[Marsymars]

> Name a major U.S. public company in recent years that has consistently prioritized improving its product over boosting short term stock price or extracting maximum profits.

Well in some perverse sense, I'd say Meta qualifies here. Zuck isn't beholden to other shareholders and is free to burn truckloads of money on worthless projects. The big asterisk is that for Meta, "improving its product" is effectively "creating the best digital cigarettes".

[watwut]

Why it must be "major"? Major is counted by stock price, you created a circular test.

And that still does not make stock the product.

[kulahan]

Lots of companies do this (Arizona green tea immediately comes to mind), but more importantly, this has no bearing on the discussion of whether or not capitalism is "good" (really, who ascribes morality to any economic system?), because the US is primarily an exercise in regulatory capture.

[array_key_first]

Good doesn't mean moral in this case, it means valuable. Capitalism, or whatever the fuck we have right now, doesn't create much real value, but instead it creates a lot of fake value that we just proxy.

And I say "or whatever the fuck" because, as you point out, it's not really capitalism. And maybe it never was - after all, the US Golden Era was when we had the most central planning, the most social services, and the highest taxes.

But everybody right now is exploiting one teensy little flaw of the economy - humans don't live very long. There's no reason to make stuff good for later when you can take a cash advance and get rich now. Everything is always someone else's problem.

I think one fun case study is superstar CEOs. They're so highly desirable, and they work 5 years at a company and "turn it around" before moving onto the next. But if you look at the company after they leave, it's in shambles. And yet, they are the most sought after CEOs. You don't want the Arizona Green Tea guy, no, you want the guy who ran Chipotle into the ground. But hey, at least he increased their stock price for, like, a little bit.

[_DeadFred_]

Arizona comes to mind because it's the outlier that everyone knows about, the company that bucks the capitalist pressure. Your choice to use it basically proves my point.

Capitalism outside regulatory capture looks like the East India company. You are basically giving me 'no REAL communism has ever been tried'.

[rcxdude]

A company does need to keep its market cap above that of its assets, if it wants to avoid a hostile takeover and sell-off of those assets.