AI expenses and a looming price war in cloud services could blow up its profits. Blame it on DeepSeek.

Microsoft reported second-quarter earnings and revenue that beat Wall Street estimates on Wednesday. The stock, however, was dropping. The company reported earnings of $3.23 a share on revenue of $69.

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Reporting quarterly earnings Wednesday afternoon, it will be tough for Microsoft to avoid the issue of the AI breakthroughs from China's DeepSeek that are shaking up the tech world and the stock market this week.

"Investing 'very heavily' in capital expenditure and infrastructure is going to be a strategic advantage over time," Mark Zuckerberg said.

In a surprising twist, Deepseek's cost-effective AI solution has rattled the stock market, raising eyebrows and sparking intense scrutiny from U.S. officials.

Microsoft MSFT.O has made Chinese startup DeepSeek's R1 artificial intelligence model available on its Azure cloud computing platform and GitHub tool for developers, the U.S. company said on Wednesday. The AI model will be available in the model catalog on the platforms and will join more than 1,800 models that Microsoft is offering.

Alibaba says it's new artificial intelligence model is superior to DeepSeek. It says the Qwen 2.5 Max edition scored better than Meta Platforms Inc.’s Llama and DeepSeek’s V3 model in various tests. Matthew Bloxham of Bloomberg Intelligence is on ".

Key Takeaways Alibaba rolled out a new AI model it says can outperform models from DeepSeek, OpenAI, and Meta Platforms.The Chinese tech giant's U.S.-listed shares climbed in early trading Wednesday following the release.