Did Microsoft Just Make Another Transformational Investment?
Microsoft’s stock is getting hit hard.
But disregard all the madness.
The company’s earnings announcement was a positive one – the stock went up shortly after the announcement.
The company reported revenue for the quarter came at $52.7 billion, near the expected $52.9 billion.
But when the company revealed its forecast for the future.
It warned revenues were likely to drop to between $50.5 and $51.5 billion next quarter.
The immediate 4% rally after the first data was released, the gains were wiped away and turned into a 3% loss.
But again, disregard it all.
Because whether Microsoft makes an extra billion here or there doesn’t matter with what the company just told the world they see as a key part of its future growth.
How Microsoft Is Investing In AI
Microsoft recently made a giant investment that could be as consequential as it’s opening investment.
It could be as big as the $120 million investment made in 2015 that became the foundation for Azure, the company’s $80 billion (and growing) cloud segment.
The investment is in OpenAI, the first major AI platform to be launched to the public.
OpenAI is the company behind DALL-E, and the recently launched to huge fanfare and millions of users ChatGPT.
The size of the investment is rumored to be around $10 billion, although no figure has been released.
That’s likely because the deal could be complicated so both companies get what they want.
And we can figure that out based on the previous deal between the two companies.
That came back in 2019 when Microsoft invested $1 billion into OpenAI.
The deal wasn’t all cash though.
It was reported to be half cash and the other half in Azure credits.
That’s the key right there.
Microsoft may want to invest in AI and could believe OpenAI is the future.
But we definitely know it wants OpenAI’s data processing business.
And that’s what it got.
TechCrunch reports, “[Microsoft’s] Azure cloud platform will continue to be OpenAI’s exclusive cloud provider, powering the startup’s workloads across research, products and API services.”
This helps us identify one of the big investment opportunities resulting from the AI boom.
That is that AI takes heaps of computing power and grows exponentially.
Research by the Center For Security And Emerging Technology at Georgetown University provides a great example.
They found that, “Between 2012 and 2018, the amount of computing power used by record-breaking artificial intelligence models doubled every 3.4 months.”
That’s a staggering level of growth.
They’re not alone either.
Ian Bratt, fellow and senior director of technology at ARM Holdings, told SemiEngineering.com, “The compute demand of neural networks is insatiable.”
IBM, which is developing an AI-specific processing chip, concurred.
IBM warned, “We're running out of computing power. AI models are growing exponentially, but the hardware to train these behemoths and run them on servers in the cloud or on edge devices like smartphones and sensors hasn't advanced as quickly.”
Everyone is saying it.
There’s an AI boom underway and the processing power necessary to feed AI’s needs isn’t there yet.
It’s going to take a lot of building to get there.
Gartner estimates the amount of investment in AI is going to surge from $37.5 billion in 2019 to $110 billion.
The Big Must Go Big
The final point is the size of all this.
Microsoft is a juggernaut of a company.
The stock is down because Wall Street is worried it's going to generate just over $200 billion in revenue.
The company is so huge it has little opportunity to find truly transformational growth.
Occasionally it does though and investors paying attention can find big growth opportunities as a result.
Investors paying attention to Microsoft’s acquisition of Groove Networks and creation of Azure could see the growth of cloud computing early on.
Today Azure accounts for 40% of Microsoft’s revenues.
This investment in AI could be just as important for Microsoft.
And when something is as big and transformational as AI, there are many ways to make many of the fortunes that come from it.
If you take the bear market as your opportunity to invest in the technologies of the future like Microsoft, you can be doing pretty well in the not too distant future.