Earlier this year, Microsoft made a $1 billion investment into OpenAI – an artificial intelligence company – and the investment is beginning to look increasingly shrewd. OpenAI recently released an AI bot, ChatGPT, which is based on its GPT-3.5 language model, which was trained on Microsoft's Azure cloud.
The Information reported that Microsoft could incorporate ChatGPT into its search engine, Bing, in an effort to compete with Google's search hegemony. OpenAI is now reportedly in discussions to raise capital at a $30 billion valuation, up from its current $20 billion valuation. According to DA Davidson investment bank director of research, Gil Luria, Microsoft's investment in OpenAI will likely lead to significant underappreciated upside and could translate to incremental volumes for Azure.
Long-term, incorporating ChatGPT capabilities into Bing may give Microsoft a once-in-a-decade opportunity to unseat Google's Search dominance. OpenAI itself expects $1 billion in revenue by 2024, and DA Davidson expects those levels to increase significantly with the introduction of OpenAI's GPT 4, its next-generation AI model, later this year.
Microsoft's investment into OpenAI appears to be a shrewd move. If ChatGPT lives up to its potential, Microsoft may have future proofed its cloud and browser business forever. The artificial intelligence field remains resilient, with VC investment in AI hitting $1.37 billion in 2022 across 78 deals. Microsoft's bet on OpenAI could result in a significant upside, and may be the key to unlocking the company's long-term success.