Is ChatGPT Microsoft's Gamechanger?

Microsoft will reportedly make a major investment into the chatbot that took social media by storm at the end of last year, but can it boost Microsoft's lagging search engine?

More than a gimmick

ChatGPT is by far not the first chatbot. But its ability to hold a conversation, compose lyrics and write essays wowed internet users. It is hailed as a major advance in AI. While it has spawned much enthusiasm, to the point that the site is often at capacity, and some worry about its ability to replace school work, it does open the question of its practical uses. It should be noted that many news outlets, such as Bloomberg, already use machine learning to write articles (which are reviewed by journalists before publication).

The program essentially works by collecting and synthesising information available on the internet, which is a more efficient version of a search engine. The current iteration of ChatGPT only uses information until 2021, so it's not useful to find breaking news. However, given the multi-billion dollar market that is search engines, it does pose a credible threat to the dominant platform, Google.

Where's the money

According to reports, Microsoft has invested $10B more into OpenAI, which developed ChatGPT. Microsoft had already invested $1B back in 2018, and for that reason, ChatGPT functions on Azure servers. The deal would give Microsoft a 49% stake in OpenAI, giving it a valuation of $29B. In return, Microsoft will get 75% of the company's profits until the investment is recovered.

The plan is to incorporate ChatGPT into Office. But what could be more market-disrupting is incorporating the technology into its beleaguered Bing search engine. Currently, it only has 8% of the market, while Google dominates at over 80%. Search represents a relatively modest source of income for Microsoft, at around $3.0B a quarter. ChatGPT's ability to summarise the most relevant results into a few paragraphs might provide a competitive advantage to the standard model of an endless list of search results. Before the explosive growth of its latest technology, OpenAI forecasted to make just $200M in revenue this year, with growth ramping up in 2023 to $1B. Investors are likely to be keen to see what Microsoft says about the potential financial impact when they report earnings later in the season.

MSFT ended short-term pullback

Microsoft prices have completed a bullish flag immediately after a broadening wedge pattern peaked at $265. With the correction finished, MSFT could see an upward spiral towards the top if bulls manage to recapture $241 in the short term. Failing to get past the interim resistance could bring the low of $212 back on the radar if $219 succumbs to bearish momentum. In the medium term and external to the levels above, $294 and $191 are critical to the stock's longer-term outlook.

Key takeaways

Microsoft is reportedly looking to invest $10B into OpenAI, the owner of ChatGPT, giving Microsoft a 49% stake in the company and a $29B valuation. The plan is to incorporate ChatGPT into Office and Bing. Bing currently only has 8% of the search engine market, compared to Google's 80%, and search represents a relatively modest source of income for Microsoft. But OpenAI has forecasted making $200M in revenue this year, with growth to $1B in
2023, and investors are likely to be keen to see how Microsoft plans to use the technology to boost its search engine and what the potential financial impact may be.