The world is gearing up for an artificial intelligence (AI) arms race and it won’t just happen between global superpowers will compete for military supremacy—it will also include tech giants like Alphabet, Apple and Googlewith thousands of startups.
Microsoft even talked to Open AI, the creator of the popular AI chatbot called ChatGPT that stormed the internet a few weeks ago to invest $10 billion in the company, Bloomberg first reported this week, citing unnamed sources. Wedbush technology analyst Dan Ives called ChatGPT one of the “most innovative AI technologies” in history, and “a potential game changer” for Microsoft, in a note on Wednesday clients.
“We believe this strategic investment is a smart poker move in this AI arms race happening around the world,” he wrote, arguing that Microsoft has become a “core AI play” for investors. .
Microsoft stock is up nearly 3% this week, but remains down nearly 25% over the past year amid a broader bear market. But Ives said OpenAI’s technology has broad applications in the tech giant, and he believes it will be “completely integrated” into its entire product suite over the next decade.
This isn’t Microsoft’s first time jumping into the AI space. The tech giant has been developing its own AI tech for years (see VALL-E, the AI that can clone your voice after listening to a three-second audio clip) and even invested $1 billion in OpenAI in 2019 to develop new AI-enabled supercomputing technologies for its cloud platform, Azure. Now, with OpenAI raising funds a $29 billion valuation and appeal to the surface 1 million users to ChatGPT less than a week after its release in early December, Microsoft reportedly also ate the apple—and Ives believes it was the right move.
“While ChatGPT is naturally a high cash-burning situation right now, we see this as a strategic move for Nadella & Co. to double down on its artificial intelligence strategy as more use cases expand unprecedented demand for AI solutions,” he wrote, referring to the Microsoft CEO. Satya Nadella.
Ives said that Microsoft will be able to integrate ChatGPT into the Office suite, and threaten the dominance of Google’s search engine by using the technology to improve search results for customers. Bing now represents only 3% of the global search engine market compared to Google’s 93%, according to Statcounter. But Ives believes that could change if the company is able to offer “more advanced search capabilities and language models.”
Ives also argued that Microsoft could use OpenAI technology in its video gaming division. Microsoft is currently in the acquisition process Activision Blizzardone of the largest gaming companies in the world, for $69 billion. But they hit roadblocks with the UK Competition and Markets Authority (CMA) and the US Federal Trade Commission (FTC)which argued that the acquisition would stifle competition in the gaming industry.
“This is another step for the company to redouble its initiatives to play this technology to find more applications within the video gaming and digital art industry,” wrote Ives, arguing that Microsoft will eventually succeed in “fight” it with the FTC.
But not everyone is so bullish on AI’s game-changing potential. Some critics call out ChatGPT dangerousand teachers are starting to wonder if the chatbot means the end of college essay. Tesla CEO Elon Musk, who himself is one of the backers of OpenAI, once described AI in general as “summoning the demon” in a 2014 interview.
Musk called ChatGPT “scary good” in a tweet on December 3 after its release, adding that “we are not far from dangerously powerful AI.” But for investors, Ives believes that AI advances can be a gold mine, and Microsoft will be one of the beneficiaries. He maintains an “Outperform” rating on the stock—similar to a buy rating—and a $290, 12-month price target.
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