Artificial intelligence has been making headlines this year and with good reason. The debut of ChatGPT and its brand of generative artificial intelligence (AI) provided a glimpse at the productivity gains that were possible for the next wave of chatbots powered by large language models (LLMs), and the potential is mind-boggling.

One of the most oft-quoted prognostications comes courtesy of Cathie Wood's Ark Investment Management, which estimates that AI software could generate $14 trillion in revenue by 2030. Even if that estimate is pie-in-the-sky, it helps to illustrate the magnitude of the opportunity.

Microsoft's (MSFT -0.11%) $13 billion investment in ChatGPT owner OpenAI helped kick off the current AI gold rush, and the company has been quick to integrate AI tools across its vast empire. The company just announced the first round of pricing for its AI-infused technology -- and it won't come cheap.

AI Artificial intelligence powered robots sitting at a conference room table typing on laptops.

Image source: Getty Images.

Be prepared to open your wallet

At Microsoft's Inspire event this week, the company announced some of the capabilities and the initial pricing for some of its AI-powered products. 

The company will soon debut Microsoft 365 Copilot, which it says "puts thousands of skills at your command ... grounded in your business data... that's all your emails, calendar, chats, documents, and more. " The company also provided examples of how Copilot will boost productivity:

So, Copilot can generate an update from the morning's meetings, emails and chats to send to the team; get you up to speed on project developments from the last week; or create a SWOT analysis from internal files and data from the web. 

Copilot will cost $30 per user per month for users of Microsoft 365 -- the enterprise version of its Office suite of productivity products -- for users on subscription plans that vary in cost from $12.50 to $57 per user per month.  

To put some context, the company charges $36 per user per month for companies on its E3 plan, which will nearly double the cost for those wanting to add the AI Copilot, according to a report by The Verge. The Business Standard plan is priced at $12.50 per user per month, so adding AI will quadruple the existing cost. 

Access to Bing Chat for Enterprise, the company's AI-powered search bot, will be a relatively reasonable by comparison, at $5 per person per month. 

Microsoft was quick to point out that these tools, which were designed to enhance and increase productivity, are protected to keep business information confidential. The company notes that chat data is not saved, and Microsoft employees cannot access proprietary data. 

A bit of perspective is in order

While the cost of using these AI tools might seem outrageous at first glance, it requires a little context. Training the LLM that underpins these next-generation chatbots is prohibitively expensive for most small- and medium-sized businesses. Researchers estimate that GPT-3, the LLM that underpins ChatGPT, likely cost about $5 million for to train, but that's likely just the beginning. OpenAI CEO Sam Altman said the latest version, GPT-4, cost over $100 million to train. 

Not all that expense was born by Microsoft, but we know it invested at least $13 billion in OpenAI. The company also footed the bill to integrate this AI-knowhow into its products and services, so Microsoft will undoubtedly need to recoup its initial investment. Finally, this wasn't an altruistic move on the company's part -- Microsoft spent money to make money, and now it's on the second part of that equation.

How Microsoft sees it

In an interview, Microsoft's head of cloud and AI, Scott Guthrie, said enterprise CEOs had flooded his inbox, clamoring for access to the company's upcoming AI products. The promise of productivity gains is helping accelerate the demand for products infused with generative AI, and Microsoft is there to answer the call.

In a conversation posted on Microsoft's website last month, CFO Amy Hood said the "next generation AI business will be the fastest growing $10 billion business in our history." Chief technology officer Kevin Scott went a step further, saying, "Because it really is a very general platform, we have lots of different ways that $10 billion of [annual recurring revenue] is going to first show up."

If you build it, they will come

If history is any guide, Microsoft is no doubt targeting the higher end of the enterprise market with the initial release of its AI tools.

It's too early to tell how the robust pricing will impact demand, but Wall Street's initial reaction was generally bullish. Veteran Wedbush tech analyst Dan Ives said that Microsoft could "increase its cloud revenue annually by 20% by 2025." He went on to say that over the "next three years, over 50% of its installed base will ultimately" adopt this AI functionality, saying this "changes the game" for Microsoft. 

Microsoft was one of the first movers in the current AI gold rush and the company is wasting no time capitalizing on the advantage. That's why Microsoft stock is a buy.