He said that amid the global AI weapons race, Microsoft is turning into a "central A.I. play" for investors, writing, "We feel this strategic investment is a smart poker move."
The price of Microsoft shares has increased by around 3% recently but has decreased by almost 25% over the previous year because of the general bear market. Ives, though, asserted that OpenAI's technology will find wide use at the multinational tech company and that, over the following ten years, it will be "completely integrated" into the company's whole product line.
Microsoft has previously dabbled in the artificial intelligence space, so this isn’t their first exposure to the nascent technology. To create new A.I.-enabled supercomputing technologies for its cloud platform, Azure, the tech giant, even invested $1 billion in OpenAI back in 2019. The company has been developing its own A.I. technology for years (check out VALL-E, the A.I. that can copy your voice after listening to a three-second audio clip). Microsoft is apparently taking another bite at the AI apple now that OpenAI has raised money at a $29 billion valuation and attracted over 1 million users to ChatGPT less than a week after its launch in early December. Ives thinks this is the appropriate strategy.
He said, referring to Microsoft CEO Satya Nadella, "While ChatGPT is inherently a high cash burn situation today, we view this as a strategic step for Nadella & Co. to double down on its artificial intelligence strategy as new use cases raise unprecedented demand for AI solutions."
Ives asserted that by integrating ChatGPT into the Office suite of programs and employing the technology to give users better search results with Bing, Microsoft will be able to challenge Google's hegemony over the industry. According to Statcounter, Bing only accounts for 3% of the global search engine industry at the moment, while Google holds 93% of the market. Ives, however, thinks that might change if Microsoft can provide "more sophisticated search capabilities and language models."
Ives additionally asserted that Microsoft's video game division might use OpenAI's technology. Activision Blizzard, one of the biggest gaming firms in the world, is presently being purchased by Microsoft for $69 billion. However, it has run into opposition from the U.S. Federal Trade Commission (FTC) and the U.K. Competition and Markets Authority (CMA), both of which contend that the acquisition will stifle competition in the gaming sector.
Ives said that Microsoft will ultimately prevail in its "fight" with the FTC, saying that this is "another move for the corporation to double down on its gaming endeavors with this technology finding further applications inside the video game and digital art business."
However, not everyone is as optimistic about the potential game-changing application of AI. Teachers have started to question whether ChatGPT spells the end of the college essay after some critics have dubbed it unsafe. Elon Musk, CEO of Tesla, previously referred to AI in general as "summoning the demon" in a 2014 interview. Elon Musk was also one of OpenAI's early backers.
Musk stated in a tweet on December 3 that ChatGPT was "scary good" and that "we are not far from dangerously strong A.I." However, Ives thinks that for investors, developments in artificial intelligence might be a gold mine, with Microsoft being one winner. He has a buy rating of "Outperform" and a $290 12-month price objective for the company. The company recently closed at $239.