Microsoft to win big with AI
Senior portfolio manager at Neuberger Berman Charles Kantor said the market has not fully priced the significant impact of OpenAI into the valuations of tech companies.
Kantor told Bloomberg Surveillance that OpenAI can add 500 basis points of value to tech companies like Microsoft and Google over the next few years.
He said the artificial intelligence (AI) market will be worth over a trillion dollars by 2030, and Microsoft and Google are well-positioned in the market.
OpenAI could add at least 20% to Microsoft’s top line over the next five to six years.
OpenAI owns and develops the AI language chatbot, ChatGPT, and Microsoft is one of its biggest investors.
Microsoft previously invested in OpenAI in 2019 and 2021. This year, in light of ChatGPT’s success, the two companies entered a new phase of partnership – one worth $10 billion.
The partnership between the two companies relates to Microsoft’s cloud service, Microsoft Azure.
Microsoft’s initial investment of $1 billion in OpenAI in 2019 made Azure the exclusive provider of OpenAI’s cloud computing services. The latest investment ensures Azure stays OpenAI’s exclusive provider.
ChatGPT has also been incorporated into Microsoft’s Bing search engine – a direct competitor to Alphabet’s Google.
According to Kantor, Google is also well-positioned in the AI market but, unlike Microsoft, has not been very clear with its long-term strategy concerning AI.
Google suffered a $100 billion loss earlier this year when its shares fell more than 7% after unveiling Bard, its version of a chatbot that did not live up to ChatGPT’s abilities.
While the company’s share price recovered quickly, its AI developments have not been as successful as OpenAI’s ChatGPT.
Kantor said Google would benefit from AI by improving its efficiency and optimisation related to its cost structure.
He said AI could be compared to blockchain technology’s impact on businesses’ efficiency – but multiplied.
Blockchain is a tamper-proof data structure that tracks something of value or interest as it passes from owner to owner.
Microsoft has been using this technology for years to improve its supply chain resiliency, traceability, and predictability.
According to a 2020 Microsoft blog post, the company was able to uncover tens of millions of dollars in hidden costs, improve end-to-end item-level traceability, reduce cycle time, and expand margins by digitizing items in a shared data structure.
“If you thought blockchain was a 200 basis point improvement to efficiency for companies adopting it, we think OpenAI is probably 500 basis points,” said Kantor.