Microsoft's investment in an artificial intelligence research firm, OpenAI, may turn out to be one of the company's smartest moves yet. In 2019, Microsoft invested $1 billion into OpenAI, cofounded by Sam Altman and Elon Musk. The deal included both cash and credits for Azure, Microsoft's cloud business.
In November 2020, OpenAI released ChatGPT, a user-friendly bot based on its GPT-3.5 language model that was trained on Azure. The chatbot received widespread praise and hype for its intelligence, with many speculating it could pose a threat to Google's search dominance.
Now, OpenAI is reportedly in talks to raise more capital at a valuation of nearly $30 billion, up from its current $20 billion valuation. The company is reportedly in discussions with Founders Fund, a venture capital firm founded by Peter Thiel.
The potential for ChatGPT to boost Bing and Azure is what makes Microsoft's investment look particularly smart. According to Gil Luria, Director of Research at DA Davidson, an investment bank, ChatGPT's success is already translating to "incremental volumes for Azure." Luria estimates that OpenAI could bring in $1 billion in revenue by 2024, and expects this to increase significantly with the release of the company's next-generation AI model, GPT 4, later this year.
There is also speculation that Microsoft may incorporate ChatGPT into Bing, its competitor to Google search. Luria writes that this could provide Microsoft with a "once-a-decade opportunity to unseat Google's Search dominance." Bing currently brings in around $11 billion in annual run rate revenue, representing around 5% of Microsoft's revenue and value. In comparison, Google search brings in $120 billion in annual run rate revenue, representing the majority of Google's $1.1 trillion value.
While investors may be hesitant to invest in speculative tech at the moment, the field of artificial intelligence remains resilient. According to Pitchbook, venture capital investment in AI hit $1.37 billion in 2022 across 78 deals, representing nearly the total invested over the past five years.
Overall, Microsoft's investment into OpenAI and the success of ChatGPT could bring significant growth to both Bing and Azure. While it remains to be seen whether the chatbot can truly pose a threat to Google's search dominance, the potential for it to do so makes Microsoft's $1 billion investment look like a smart move.