Xbox Insiders can now test an artificial intelligence (AI) powered Xbox chatbot that Microsoft has been testing. The announcement comes shortly after the company’s fiscal Q1 2025 earnings release, which disappointed investors. Following the release, the stock fell 6%, its worst day in two years, due to various concerns including its ability to monetize its vast AI investments.

In its release, Microsoft said that Xbox Insiders who are located in the US and have selected English as their preferred language can preview the Support Virtual Agent.

“We value the feedback from Xbox Insiders for this preview experience and any feedback received will be used to improve the Support Virtual Agent,” said Megha Dudani, senior product manager lead at Xbox.

How Would the Xbox Support Virtual Agent Work

The Xbox Support Virtual Agent is an AI chatbot that Xbox Insider will see on the “Contact us” page on support.xbox.com. After login, users will see an option to ask a question to the virtual agent in both text and voice. If the chatbot is not able to address the query, the user can request to speak with a live support agent for redressal – provided it is within the normal operating hours.

xbox ai chatbot
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The Xbox AI virtual assistant is yet another instance of Microsoft adding AI features to its services, and it is expected to soon add AI enhancements to the Xbox console.

Microsoft Has Spent Billions Towards AI

Meanwhile, despite investing billions of dollars towards AI, most tech companies are yet to effectively monetize their investments and Microsoft is no exception. Microsoft stock fell 6% after it reported its September quarter earnings last week as while its earnings were better than expected its guidance for the December quarter trailed estimates.

Microsoft reported revenues between $68.1 billion and $69.1 billion for the current quarter which implies a YoY rise of a mere 10.6%. It fell short of the $69.8 billion that analysts were expecting. The company also said that it will book a $1.5 billion loss in the current quarter predominantly on its investment in OpenAI. The company has invested over $13 billion in the ChatGPT parent and is committed to investing more over a multi-year horizon.

OpenAI has been posting absolutely massive losses and is expected to lose $5 billion in 2024 on revenues of $3.7 billion. That said, while the company’s losses have been widening, its revenues are also growing at a brisk pace with sales expected to more than triple to $11.6 billion in 2025.

Microsoft Is Upbeat on Its OpenAI Investment

Since Microsoft reports its investment in OpenAI using the equity method, the company needs to recognize its share of losses in OpenAI in its own income statement.

During the earnings call last month, Microsoft was quite upbeat on AI – just as other tech giants are. “We are seeing AI drive a fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes,” said Microsoft CEO Satya Nadella during the earnings call.

He added that Microsoft has managed to increase its share in the search market with AI-powered Edge and Bing. In response to an analyst’s question about the relationship between Microsoft and OpenAI, Nadella said that it was “super beneficial” which led to “great success” for both companies.

The importance of AI pivot for Microsoft was underscored by the fact that most analyst questions during the earnings call had something to do with AI.

Microsoft Is Yet to Monetize Its AI Investments in a Big Way

Revenues of companies creating AI products like Microsoft and Alphabet aren’t taking off in a big way despite the massive investments that they are making in AI. Even sales of Apple’s iPhone 16, which was expected to lead to a supercycle amid the AI-powered features, are slow so far. While it was partially due to the late rollout of the flagship Apple Intelligence which will power the device’s AI features, analysts are circumspect about iPhone 16 sales

The valuations of AI companies have gone through the roof as is illustrated by OpenAI’s value doubling within 2024 to a mammoth $157 billion. Naturally, analysts are looking at these valuations and comparing them with returns on AI products and most don’t like what they see, ringing alarm bells about a potential bubble. Chip companies – predominantly Nvidia and its supplier Taiwan Semiconductor Manufacturing Company – have been among the biggest early beneficiaries of the AI pivot, thanks to the soaring demand for AI chips.

Looking elsewhere, analysts see Meta Platforms as an early winner and during the Q3 earnings call, the company said that its Meta AI now has 500 million monthly active users and reiterated that it expects it to become the most widely used AI assistant across the world by the end of 2024.

Meta also said that in September, 1 million advertisers created 15 million ads using its AI tools. The company added that the average time spent on Facebook and Instagram has risen by 8% and 5% due to AI-driven feeds.

Is AI a Bubble?

While a section of the market sees AI as a “bubble” like the dot com bubble, many others see the technology’s impact on corporate earnings as real and lasting. Last year Goldman Sachs said that AI could increase productivity by 1.5% annually which can increase S&P 500 profits by 30% or higher over the next 10 years.

However, some others see it as an even bigger bubble than the famous dotcom bubble of the 2000s. In their article, Gary Smith, a professor of economics at Pomona College, and Jeffrey Funk, a retired professor and winner of the NTT DoCoMo mobile science award, argue that AI is a massive bubble. They point to the scant revenues that generative AI is generating since many, if not most, of these services – including the Xbox chatbot that Microsoft announced – are free to use.

They argue, “the internet generated more than $1.5 trillion in revenue (in 2024 dollars) in 2000 — and the internet bubble still burst. Generative AI, on the other hand, is currently generating less than $10 billion. If the bubble bursts, it will be a very large pop.”

All said, the AI euphoria seems to have subsided somewhat as was evident in the recent earnings call of tech companies, including Microsoft. Investors are no longer cheering at every mention of AI during the earnings calls and are instead looking for tangible progress on monetization and signs of healthy ROI (return on investment) on AI capex. Failure to do so is leading to a sell-off and it’s about time that tech companies face even greater scrutiny over their burgeoning AI capex.