The artificial intelligence (AI) revolution represents a transformative force with the potential to reshape industries and create significant investment opportunities. While some companies positioned themselves to leverage this massive trend toward greater heights, many might experience enormous disruption in their existing businesses and some toward complete obsolescence.
Microsoft (MSFT 2.56%), a leading technology company, belongs to the former group thanks to the strategic moves it has taken in recent years. Let's explore how the giant positioned itself to take advantage of the vast opportunities that will arise from the advancement of AI.
Image source: Getty Images.
Microsoft's investment in OpenAI
Microsoft made a significant move at the start of the year with its $10 billion investment in OpenAI, the owner of ChatGPT. This strategic move followed an earlier investment of $1 billion in 2019, aiming to give the tech giant an edge over its peer -- notably Alphabet -- in the AI race.
Microsoft's investment in OpenAI brings several benefits. The immediate impact is that such an investment provides access to some of the most advanced AI technologies available today, especially in generative AI. For example, the partnership allows the giant to swiftly integrate ChatGPT into its search engine, Bing, aiming to improve user experience and hopefully expand Microsoft's market share in the online search industry long dominated by Google Search.
In the longer term, however, such a partnership puts Microsoft in an excellent position to integrate OpenAI's advanced generative AI technology into other products -- such as Microsoft Office and Azure Cloud -- making these products even stickier to its customers (more in the following section). It also opens up opportunities for collaboration, leading to faster and better innovation and advancement in the AI race.
Integration of AI into products and operations
The advancement of AI will likely lead to the creation of entirely new industries that have yet to exist today. But to bet on these opportunities is too remote for most DIY investors. Fortunately, we can benefit from this trend more easily: Ride with companies that can use AI to make their existing products and offerings more compelling. Microsoft is one of those companies.
We have discussed how Microsoft has already integrated ChatGPT into Bing to make it a better search product. Recently, the tech giant introduced Microsoft Copilot -- an AI companion that can help users answer questions, create things, and take action -- and the integration of this AI feature into its flagship products like Windows, Bing, Edge, and Microsoft 365. While it is still early, these new AI features/integrations could lead to higher switching costs for users, making them more dependent on Microsoft tools and services.
On top of that, AI can help Microsoft improve its internal efficiency and optimize its processes, leading to productivity gains and, ultimately, higher profits. After all, the products and solutions offered to make customers more successful (and more) are available to internal employees. In other words, AI also helps Microsoft do more with less.
AI and cloud computing
Cloud computing is another area within Microsoft that's set to benefit in the coming years as AI technologies develop.
In addition to integrating AI into its existing cloud offerings, Microsoft can also provide AI-specific services to help customers succeed in the AI world. For instance, Azure AI Services -- a suite of out-of-the-box and customizable AI tools, APIs, and models -- helps developers and data scientists build AI solutions such as speech recognition and image recognition. And there are many more products like these, such as Azure Machine Learningand Azure Cognitive Search.
These AI tools help companies achieve more with fewer resources, making them more successful at transitioning to an AI-driven future. As companies become more successful, they naturally spend more money with Azure Cloud. Moreover, as companies use more products from Microsoft, their switching costs increase, further enhancing the sustainability of Microsoft's long-term profitability.
Microsoft is the AI stock to watch
The AI revolution is real, so companies can either embrace it or face the risk of disruption.
Microsoft's solid commitment to AI, its strategic investment in OpenAI, and its robust suite of AI services and tools position it as a formidable force in the AI race.
Investors looking to ride the AI wave should keep the company on their radar.
