Wall Street is abuzz over artificial intelligence these days, and Microsoft Corp. is looking to capitalize on the sentiment.
But there’s still a line to be drawn between hype and financial reality, some analysts say, after Microsoft
on Tuesday launched a version of its Bing search engine that’s enhanced by the trendy ChatGPT chatbot. The company also addressed analysts and investors Tuesday about the opportunities AI could open up in advertising.
Read more: Microsoft gave some numbers on AI-powered search. Here’s what the company says.
AI fervor has swept up smaller stocks like BuzzFeed Inc.
and C3.ai Inc.
which have more than doubled on the year. Microsoft shares haven’t realized gains of nearly that magnitude, but they’re up about 1% in Wednesday morning trading, while shares of Google parent Alphabet Inc.
are down 7%.
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Microsoft is an also-ran in the world of search, where Google is dominant. But the frenzy around ChatGPT creator OpenAI, which counts Microsoft as an investor and partner, has accelerated the public AI race between the two tech lions. While Microsoft currently owns just a sliver of the search market, executives said Tuesday that each incremental point of share gains could translate to a $2 billion revenue opportunity.
Opinion: Can Microsoft make Bing cool with ChatGPT? There’s so much upside that it may not have to.
Still, Microsoft shouldn’t be heading to the bank just yet, some analysts say.
“We give Microsoft credit for building such a close partnership with OpenAI and thereby creating monetization opportunities across its portfolio, but we conclude that even a hugely upgraded Bing has a mountain to climb to take search share from Google, which itself is launching a similar AI-powered search service,” UBS analyst Karl Keirstead said in a note to clients following the announcement.
He rates the stock at neutral with a $250 target price.
John DiFucci of Guggenheim doubted whether Microsoft would see disproportionate benefits from the AI wave.
“Microsoft has been an early industry leader in widely promoting its AI intentions, but will they benefit more than others?” DiFucci asked in a research note. “We don’t
think so, or we at least think that there’s a high risk in assuming that to be the case. We don’t think it’s a stretch that Apple, Amazon, Google, Meta and thousands of others have been investing in this area — for years — as have the myriad of companies that already embed AI as part of their applications.”
He’s bearish on the stock, rating it a sell.
Microsoft is also enhancing its Edge web browser, and that, along with the Bing upgrade, is a “positive for [Microsoft] in the fight against entrenched Google incumbents,” wrote Raymond James analyst Andrew Marok. At the same time, he cautioned that Microsoft’s initiatives are “not a slam dunk,” as he sees “a couple potential issues” down the road.
“Aside from the inevitable launch of competing product, Microsoft will have to encourage a shift in user behavior and thinking about the capabilities of a search engine,” Marok wrote. “In addition, the traditional function of a search engine has been to funnel traffic to sites that contain the information searchers are looking for; how will those publishers react to potentially being disintermediated by an LLM-powered search experience?” LLM refers to a large language model.
Raymond James has an outperform rating on Microsoft shares.
Baird’s Colin Sebastian, who follows Alphabet’s stock, said that Google is running a “marathon” while Microsoft “sprints.”
“Microsoft is taking a big leap, integrating OpenAI technology with Bing, a smart move for a search engine with limited share — how could Bing not gain search share after all the media hype?” Sebastian asked. “In contrast, Google is taking a more iterative, or measured approach, adding more AI-based features into Maps, Translate and Search, but also accelerating the public testing of its own Gen-AI tool (Bard). Google has a lot more to lose than gain from rushing Gen-AI out the door.”
In his view, Google “has competitive advantages in scale, engineering, cloud resources and AI capabilities putting them in a good position to be a net beneficiary” of generative AI, or the type of AI that ChatGPT embodies.