Microsoft Is Retreating in China, but AI Keeps a Door Open

This article first appeared on GuruFocus.

Software and cloud giant Microsoft Corp. (MSFT, Financials) has been steadily decreasing its footprint in China as the market becomes difficult to explain due to geopolitical pressure, local rivalry and U.S. export restrictions.Microsoft has shuttered at least 15 branch offices and joint ventures in China over the past five years and even toyed with quitting the country entirely in 2023, Reuters reported.In the end, the company stayed. One reason is that it has capitalized on making money enabling Chinese companies like ByteDance and Shein run global operations on Azure.That provides Microsoft with a niche that domestic Chinese cloud companies can’t always copy, especially if customers demand access to Western AI models or have to adhere to foreign data rules.But the whole China business is modest. The country accounted for just 1.5% of its global revenue, Microsoft stated in 2024. The message for investors is less about…