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Microsoft Stock Jumps Ahead of AI Media Event With ChatGPT Plans In Focus

TheStreet logo TheStreet 2/7/2023 Martin Baccardax
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"We're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts," said CEO Sataya Nadella.

Microsoft  (MSFT) - Get Free Report shares jumped higher in early Tuesday trading ahead of the tech giant's media event, slated for later in the session, that is expected to unveil plans for its AI-focused investments over the coming years.

Microsoft confirmed plans to expand its investment in OpenAI, an artificial intelligence group founded by Tesla  (TSLA) - Get Free Report CEO Elon Musk, last last month as the tech giant ramps-up investments in advanced technologies following a massive round of job cuts and cost-cutting. 

Microsoft said the multibillion investment -- the third it's made into the group -- would extend its collaboration with OpenAI and its key consumer and business product, the ChatGPT chatbot.

Semafor reported the Microsoft will invest $10 billion in OpenAI in a deal that values the San Francisco-based group at around $29 billion. Microsoft would recoup cash from OpenAI's profits under terms of the deal, Semafor reported, and then ultimately own a 49% stake in the group.

The investment would mark the third Microsoft has pumped cash into OpenAI, following a $1 billion infusion in 2019 and a smaller investment in 2017. Other media reports has suggested the ChatGPT could be used in a new version of the tech giant's Bing search engine.

Google parent Alphabet  (GOOGL) - Get Free Report, meanwhile, unveiled its own challenge to ChatGPT on Monday with the test launch of an AI-based tool called 'Bard'.

"We're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts," CEO Sataya Nadella told investors last month. "We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time.

Microsoft shares were marked 1.7% higher in early Tuesday trading to change hands at $261.00 each.

"With Google aggressively looking to defend its turf on the search front with its own beta AI tool named Bard, Microsoft is aggressively going after the AI opportunity on both the cloud front as well as the search frontier," said Wedbush analyst Dan Ives, who carries an 'outperform' rating with a $280 price target on Microsoft. 

"We view this as the first shot across the bow in this Big Tech AI battle that is set to hit its next gear of investments over the coming months with Microsoft now leading the race," he added. "While Bing today only has roughly 9% of the search market, further integrating this unique ChatGPT tool and algorithms into the Microsoft search platform could result in major share shifts away from Google and towards Redmond down the road."

Microsoft posted better-than-expected December quarter earnings of $2.32 per share on January 25, as revenues rose 1.9% from last year to to $52.7 billion for its fiscal second quarter, but forecast current quarter sales for its intelligent cloud division of between $21.7 billion and $22 billion, a tally that missed Refinitv forecasts.

Investors had originally cheered Microsoft's December quarter gains, particularly with revenue from Azure, its flagship cloud division, rising 31% from last year and topping Street forecasts. The growth rate for that unit continues to decline, however, following a recent run of advanced in the mid to high 40-percent range as companies pull back on digital infrastructure spending.

CFO Amy Hood noted that Microsoft's customers were "exercising caution" in terms of business investment, adding that growth continued to moderate, particularly in December, and we exited the quarter with Azure constant-currency growth in the mid-30s."

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