Microsoft Corp MSFT has become the cool kid on the block once again.
The company, often seen as the one of the most well-established but less innovative among the tech giants, has surprised most critics by being an early provider of generative AI tech to the masses.
Albeit its size, Microsoft wasn’t able to ever reach Apple Inc‘s AAPL dominance in the smartphone ecosystem or Alphabet Inc‘s GOOG undisputed place in the search engine arena. Yet today, the company’s strategic partnership with OpenAI is bringing new hopes to its bottom line, and investors are responding well.
“Microsoft is 48 years old. I don’t know of many companies that age that are relevant not because they did something in the ’80s or the ’90s or the 2000s but because they did something in the last couple of years,” said CEO Satya Nadella in a recent interview.
Investors Are Going All-In: Microsoft’s investments in artificial intelligence have significantly fueled its stock growth, propelling shares to an unprecedented peak of $346 on Thursday. At the time of writing, the tech giant’s stock has increased by 2.4% for the day, and over the past five days, it has climbed 6.3%. MSFT shares have seen a growth of 11.6% since mid-May and a 38% surge since mid-December.
Also, on Thursday, two analysts raised Microsoft’s one-year price target. Analyst Gregg Moskowitz from Mizuho maintained a Buy rating and raised its price target from $340 to $360. Analyst Mark Murphy from J.P. Morgan maintained an Overweight rating and raised the price target from $315 to $350.
Mizuho analysts doubled down on the company and its “strongly positioned” stance to capitalize on Generative AI. Earlier this month, Evercore ISI analyst Kirk Materne estimated that the AI business could bring Microsoft an extra $99 billion in revenue by 2027.
Last week, Microsoft opened a new chapter, announcing it will start providing AI technology to the federal government.
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Microsoft’s New Chance To Shine?: Nadella, who joined the company in 1992, is living through what could be Microsoft’s second boom, decades after the company’s historic role in making the personal computer ubiquitous around the world.
A bold investment of $10 billion ($13 billion by some accounts) in OpenAI, is changing Nadella’s profile and putting him in front of the AI revolution.
“They bet on us, we bet on them,” said Nadella of OpenAI in a recent interview with Wired’s editor-at-large Steven Levy.
“They do the foundation models, and we do a lot of work around them, including the tooling around responsible AI and AI safety,” he added. The use of AI for cybersecurity was specially praised in Mizuho’s latest note on the company.
“Leveraging OpenAI’s latest GPT-4 technology, Security Copilot simplifies and expedites the process of detecting more advanced threats,” said Mizuho analysts.
Microsoft Vs Google: Nadella referred to Microsoft’s renewed rivalry with Alphabet’s Google. Microsoft added ChatGPT to its Bing search engine earlier this year, forcing Google to prematurely launch its own conversational AI search assistant “Bard” earlier than anticipated.
“I want people to know that we made them dance,” said Nadella in a February interview with The Verge.
“Google Search was default on Android, default on iOS, default on the biggest browser, blah, blah, blah. So I said, ‘Hey, let’s go innovate and change the search paradigm so that Google’s 10 blue links look like Alta Vista!'” said Nadella.
Alta Vista was a search engine that dominated the market in the early 1990s and lost much of its share after Google’s search algorithm took the company to the top of the sector. Nadella is expecting Microsoft’s new AI-powered Bing to overtake Google in a similar way.
“Let there be a real competition, and let people enjoy the innovation,” he said.
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Image from Brian Smale and Microsoft at Wikimedia Commons.
