Microsoft (MSFT 0.59%) is one of the companies that's been at the forefront of the artificial intelligence (AI) revolution in the tech industry. It has invested billions into ChatGPT-maker OpenAI and added AI capabilities to its Office software. And the company is promising to help save business users lots of time with its Copilot virtual assistant, which will help people draft emails, assist with PowerPoint presentations, and create formulas in Excel spreadsheets.
Those all sound like time-saving features, but whether they're enough to justify paying for a subscription to Copilot is something I've questioned from the start. While they're nice-to-have features, they may not be necessary for businesses, especially when Copilot costs $30 per user per month.
There are rumblings that business users aren't impressed with the capabilities. If that's the case, that could be a big problem for the highly valued tech stock.
NASDAQ: MSFT
Key Data Points
Is Copilot just Clippy 2.0?
Microsoft launched an office assistant called Clippy, represented by an animated paperclip, back in the '90s but removed it after many users became frustrated with it. Clippy recognized when you were working on a resume or letter and offered to help. While technology has come a long way since then and there's a lot more Copilot and chatbots can do than Clippy, the idea isn't a lot different.
One chief executive officer who isn't impressed is Salesforce's Marc Benioff, who says, "Microsoft Copilot is basically the new Microsoft Clippy." Benioff may, of course, be biased, given that his company wants to hype its own AI product, Salesforce Einstein.
Microsoft recently rolled out a new wave of features for Copilot to help with collaboration, as well as agents that can help automate tasks. Is there anything there that can prove to be a game changer for a business? It's still debatable.
Users can access a lot of the functionality Copilot offers via ChatGPT or other chatbots, and in many cases, a subscription isn't necessary. That's why I'm a bit skeptical about Copilot, even with the launch of new features.
Microsoft expects AI sales growth, but investors should temper their expectations
Last year, Microsoft said it might generate as much as $10 billion in annual AI-related revenue by 2026. Although that's a significant amount of money, investors should also remember that this company brought in more than $245 billion in sales in the trailing 12 months. A $10 billion increase would represent a 4% boost to its top line.
In the early innings of AI, it may be easy for Microsoft to generate a lot of growth due to Copilot, but as companies have more time to evaluate it and other AI-related products emerge, that could change. I've used Copilot and have been unimpressed with what it offers. I also think there's some truth in what Benioff is saying -- that Copilot may just be another incarnation of Clippy.
While Copilot has greater capabilities than Clippy, it could be difficult for businesses to justify taking on a large annual expenditure on the new features. There's no showstopper that makes Copilot a must-buy for a business.
Shares of Microsoft could be due for a correction
Microsoft is a highly valued stock with a market cap of $3.2 trillion. At more than 36 times trailing earnings, investors are paying a big multiple for a business that may be facing increased competition in the future. Although its sales are still growing, they may not be at a fast enough rate to justify such a high premium for the tech stock.
It's too early to say that Copilot will turn out to be a disappointment, but it wouldn't surprise me if that turned out to be the case. This stock has gotten a bit too hot of late. Unless you're willing to buy and hold for several years, you may be better off pursuing more modestly priced growth stocks instead of Microsoft.
