2023 is just getting started, but the buzzword of the year in the tech world is already clear. Big tech firms can't stop talking about AI, and it's easy to see why. OpenAI's launch of ChatGPT has transformed the public's perception of what artificial intelligence is capable of, and the potential applications for the business world and beyond are vast.

The start-up tech company is backed by Microsoft (MSFT -1.27%), which invested $1 billion into it in 2019 and just said it would invest billions more into the revolutionary tech company.

Not surprisingly, AI was a major theme in Microsoft's earnings call, and while the company's results were underwhelming due to headwinds in the PC market, among other factors, its moves in artificial intelligence are what long-term investors should be focused on now.

A man looking at a computer with a digital graphic.

Image source: Getty Images.

Microsoft's AI strategy

Microsoft's partnership with OpenAI has already begun bearing fruit. Earlier this month, the company announced that its Azure OpenAI service was now generally available, allowing customers to apply for access to the GPT-3 large language model AI and soon ChatGPT, as well as DALL-E 2, an image-generation AI, among other tools.

It's also introduced Github Copilot, a tool powered by OpenAI that helps programmers by suggesting code and functions in real-time. More than 1 million people have used GitHub Copilot far. The company also claims to have the most powerful AI supercomputing infrastructure in the cloud.

As CEO Satya Nadella sees it, these moves and the OpenAI partnership are about building a first-mover's advantage in artificial intelligence, which seems to be on the verge of transforming the way we use technology. Discussing AI on the earnings call as the next computing platform, he said, "This is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position while internally aligning our own cost structure with our revenue growth."

Delivering more value to customers through AI should drive the company's business over the long term, and he also referenced the company's recent layoffs so it could pour more resources into artificial intelligence. 

Nadella added, "And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts." In other words, it's crucial for Microsoft to be in the pole position as these new AI features gain adoption, and that statement shows why he's so focused on getting the first-mover's advantage. 

As one example of how AI is powering the growth of the business, management shared that Azure machine learning revenue has more than doubled in each quarter for the last five quarters.

The competition isn't standing still

The company with the most to lose from Microsoft's rise with OpenAI may be Alphabet (GOOGL -1.23%) (GOOG -1.10%). The Google parent has also been talking up its investments in AI for years, but the company has relatively little to show for it as far as a commercialized product, such as using AI for things like improving search results.

Alphabet acquired AI tech company Deepmind in 2014 and has developed its own large language model, LaMDA, which is better than ChatGPT, according to some observers.

Alphabet CEO Sundar Pichai also homed in on AI when his company announced layoffs earlier this month, saying that Alphabet pivoted to being AI-first years ago, adding, "We have a substantial opportunity in front of us with AI across our products and are prepared to approach it boldly and responsibly."

Meta Platorms'(META -4.13%) Chief AI scientist also pushed back on the notion that ChatGPT was a novel technology, or that OpenAI is ahead of other big tech companies like Meta and Alphabet.

Is Microsoft the top dog in AI?

Which company has the best technology in AI is sure to be debated, but it may not matter, as having the best technology doesn't necessarily translate into the best or most successful product. Alphabet, for example, seems hamstrung by the innovator's dilemma. It's hesitant to release its AI in part because it doesn't want to disrupt its search monopoly.

LeCun, Meta's AI chief, said as much on Twitter, writing, "By releasing public demos that, as impressive and useful as they may be, have major flaws, established companies have less to gain & more to lose than cash-hungry start-ups. If Google & Meta haven't released chatGPT-like things, it's not because they can't. It's because they won't."

In November, Meta released Galactica, its own large language model geared at scientists, but pulled it after just three days as it was criticized for inventing things.

Microsoft may force Alphabet's hand, however, as it's expected to release a ChatGPT-powered version of Bing as soon as March. In fact, Alphabet even held a "Code Red" meeting in response to the release of ChatGPT.

Microsoft also has the advantage of being more diversified than big tech peers like Alphabet and Meta, which get the vast majority of their revenue from advertising. Microsoft can apply AI to a wide range of products, including Azure, GitHub, software like Office Dynamics, its enterprise resource planning product, devices like Surface, and Bing. 

The Windows maker is moving fast with the new technology, and its recent decision to invest billions more into OpenAI shows the partnership is delivering a good return on its investment.

After Microsoft lost out on mobile, Nadella clearly understands the value of being early to AI. At this point, Microsoft is the frontrunner in the AI race, and after Alphabet's Code Red and Meta's Galactica flop, both are now playing defense.

If Microsoft can hold onto its lead, that could mean huge returns. As we've already seen in search, social, and mobile, big tech markets are often winner-take-all.