A big winner of AI is Microsoft (NASDAQ: MSFT). As of Wednesday's market closure, the stock had gained 57% in 2023 and 12% this year. It constantly breaks new all-time highs.
Windows, Office, and Teams are Microsoft's best-known products. Microsoft has entered the generative AI space, swiftly adding AI capabilities to its products and services. Investors are confused. Should Microsoft stock be bought after 75% gains in 15 months? Check the data.
One could argue that Microsoft was at the right place at the right moment, but that would neglect the hard effort behind the scenes. Microsoft invested $1 billion in OpenAI in 2019, before generative AI became popular last year. This started a long-term partnership that advanced the technology.
The partnership trained generative AI's large language models (LLMs) on supercomputers. The bots could draw terrifyingly exact visuals from voice cues, answer complex questions, and code an unfinished software app.
Microsoft tested this last bot in GitHub, which it acquired in 2018. The site, where developers collaborated on software programs and code, was ideal for testing such a tool. GitHub Copilot was popular with developers after its late 2021 release, despite its flaws.
This accomplishment inspired subsequent Copilots. Microsoft trained fresh versions of Copilot for each Office Suite application in late 2022 using a similar pattern. Microsoft released a preview of Copilot for public testing with "guardrails" to limit inaccurate responses. To improve the tool's capabilities, Copilot gave two replies to a query and asked testing partners to choose the best one.
Success led Microsoft to extend its share in OpenAI to $13 billion by early 2023, accelerating the AI revolution began with ChatGPT. Microsoft also offers industry- and job-specific Copilots, including those for sales, service, and finance professionals, with more under development. CEO Satya Nadella said Copilot users love it. "Customers tell us that once they use Copilot, they can't imagine work without it."
Cash register ringing on AI This AI venture is too early to determine how much Microsoft will gain, but Wall Street's brightest are trying. Copilot for Microsoft 365 costs $30 per month per user. This may add $10 billion in income by 2026, according to Piper Sandler.
Macquarie Research estimates that Copilot may generate $14 billion in its first year if 10% of Microsoft's enterprise clients use it. More optimistically, Evercore analysts estimate Copilot may generate $100 billion in revenue by 2027.
Microsoft stock trades at 36 times forward earnings, compared to 28 for the S&P 500. Nobody knows how much the corporation will profit from its Copilot approach, but it will undoubtedly be significant. Even at its all-time high, Microsoft stock appears to be a good buy.
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