Microsoft will benefit from ChatGPT, OpenAI in multiple ways — potentially at Google’s expense, analyst says

Microsoft Corp.’s investors don’t fully appreciate its investment in OpenAI, and by extension the profusely-hyped and rapidly growing chatbot ChatGPT, a platform that could eventually help the tech giant compete with Google, an analyst said Wednesday.

That analyst, Gil Luria at D.A. Davidson, initiated coverage of Microsoft
with a buy rating and a $270 price target, after the analyst who was previously covering the stock left the firm.

And even as Microsoft and others in the tech industry cut jobs, Luria said the tech behemoth stands to weather a downturn just as well as its large peers.

Shares of Microsoft finished 4.4% lower during Wednesday. But the stock had inched 0.2% higher after hours.

“We believe Microsoft’s investment in OpenAI will translate to significant underappreciated upside,” Luria said in a research note Wednesday.

He said that the “unprecedented activity” at ChatGPT, which articificial-intelligence research company OpenAI debuted several weeks ago, was likely generating more business for Microsoft’s cloud platform Azure. Microsoft in 2019 said it was investing $1 billion in OpenAI, and the two companies at that time struck a partnership intended to broaden Azure’s reach in big AI systems.

“We have heard estimates between $250mn-1bn annual run rate of expenses at OpenAI, much of which is likely being spent on Azure,” Luria said. “We expect those levels to increase significantly with the introduction of GPT4.0 later this year and the many product offshoots that will link to OpenAI via APIs.”

Also read: ChatGPT is called ‘an iPhone moment in AI,’ but will it make money like the iPhone?

Sam Altman, OpenAI’s chief executive, said last month that ChatGPT’s user count had surpassed 1 million within days of its launch. The chatbot’s popularity has expanded as people grow more curious about its ability to respond to questions and solve other problems — sometimes in ways that are smarter, more creative or conversational than what users expect from a bot. Luria saw other uses as well.

“Longer-term, we believe incorporating ChatGPT capabilities into Bing may provide Microsoft with a once-a-decade opportunity to unseat Google’s Search dominance,” Luria said.

“While Google has its own generative AI effort, our checks indicate it is not yet as capable as ChatGPT. Furthermore, we believe Google will need to face a major case of innovator’s dilemma in deciding to incorporate generative AI into Search, thus significantly disrupting its current ad-selling model,” he said.

The Information on Tuesday reported that Microsoft was planning to incorporate ChatGPT’s AI technology into a new version of its Bing search engine.

Luria said he expected Microsoft to be “at least as resilient” as Apple Inc.
+1.03%, Inc.
and Google parent Alphabet Inc.
in a global downturn. However, he said that Azure’s market growth could slow, and that the decline in PC demand could still hurt Microsoft up ahead.

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