Microsoft has reportedly agreed to invest $10 billion in ChatGPT developer OpenAI.
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Microsoft
is still looking to set the pace in artificial intelligence. It is taking direct aim at Google, and analysts are seeing Microsoft as gaining a first-mover advantage.
Microsoft (ticker: MSFT) said Tuesday that it would add generative AI technology powering chatbot ChatGPT to its Bing search engine. It’s a rare chance for Microsoft to take the role of disruptive underdog while also wielding its financial might.
Microsoft stock is up 1.4% in premarket trading on Wednesday, having closed up more than 4% on Tuesday.
Microsoft’s cloud-computing arm Azure makes it one of the few companies that can provide the processing power needed to support AI tools developed by companies such as ChatGPT developer OpenAI.
“We reiterate our belief that AI is a generational technology that has been underappreciated in Microsoft’s story given the company has invested materially for many years to lay a differentiated AI foundation across its tech stack,” analysts at J.P. Morgan wrote. “We think that Microsoft’s investment into OpenAI, which started years ago, could potentially prove to be some of the best money ever spent.”
The J.P. Morgan analysts raised their target price on Microsoft stock to $305 from $265, and kept an Overweight rating.
Microsoft has said that every percentage point of market-share gain in the search-engine market is equivalent to a $2 billion annual revenue opportunity in advertising. Google currently has a 93% market share, with Bing having 3%, according to data provider Statcounter GlobalStats.
Analysts at Mizuho Securities, led by Gregg Moskowitz, said Microsoft’s AI additions should have broad uses in both its consumer and enterprise businesses. They raised their target price to $300 from $280, and kept a Buy rating on Microsoft stock.
“We wouldn’t underestimate the potential for AI to meaningfully influence the narrative on MSFT later this year (especially as the pace of innovation quickens), and that moment may arrive even sooner than we had expected,” the Mizuho analysts wrote.
However, while Microsoft has set the early pace on AI announcements, its rivals are now striking back. Google-parent
Alphabet
(GOOGL) on Monday announced a conversational AI chatbot of its own called Bard.
“Microsoft has been an early industry leader in widely promoting its AI intentions, but will they benefit more than others? We don’t think so, or we at least think that there’s a high risk in assuming that to be the case,” Guggenheim analysts wrote. They kept a Sell rating on the stock.
Write to Adam Clark at adam.clark@barrons.com
Credit: marketwatch.com