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Shares of Microsoft (MSFT) have been strong this year - now up 33% year to date - thanks primarily to the artificial intelligence (AI) rush. What's more impressive than its stake in ChatGPT parent OpenAI is that the firm seems to have melded generative AI across its broader range of offerings, from its search engine Bing — which appears to be utilizing ChatGPT-4 as a weapon to be more competitive with Alphabet's (GOOG) Google Search — to its Office suite, its flagship Windows operating system, and even Azure.
Undoubtedly, there's a gigantic opportunity to monetize Microsoft's offerings further as generative AI looks poised to enhance productivity in the workplace. Even with the threat of antitrust, though, Microsoft doesn't want to hinder its pace as it preserves its first-mover advantage in the field of generative AI.
Microsoft Is the AI Play of the Day - But Alphabet Wants the Title
Of course, Microsoft isn't the only company that's aggressively pulling the AI-evolution lever. Alphabet has been introducing new AI innovations rapidly, and is ready to implant them across its everyday productivity offerings, just like Microsoft.
Certainly, the second thing (after search) that likely comes to mind when you think of Google at this point is AI. And though allowing Microsoft to be a frontrunner in AI may have its fair share of downsides, it may also have some pluses.
In its current state, even the most powerful large language models (think ChatGPT-4 and the like) are way too confident in the responses they provide - including the embarrassingly erroneous ones. Indeed, adding sources to Bing AI seems shrewd. But it's not a surefire resolution to evade "hallucinations."
In any case, it's clear that Microsoft has its fair share of rivals who are more than willing to replicate its profoundly impressive AI rollout strategy as they seek to tackle problems as they arise. But that doesn't mean they'll have any success at topping Microsoft anytime soon.
As it stands, Microsoft stock remains the AI play of the day - at least in my books.
Microsoft's Nadella Goes to Washington
Recently, Microsoft CEO Satya Nadella testified on search before the U.S. Department of Justice amid its antitrust case against Google. Though Bing has improved by leaps and bounds with the inclusion of its ChatGPT, Nadella noted that Microsoft's rival product is still having a tough time competing against Google Search.
There's no doubt that Google Search has a wide moat that may take more than just an intriguing LLM to penetrate. Further, Google has its own LLM that's every bit as capable. And that's not the only factor keeping users from "Binging" it instead of "Googling." As you may know, Google has quite an impressive ecosystem of productivity tools. Just how entrenched are its users?
Though the Google ecosystem may pale in comparison to Apple's (AAPL) walled garden, I still think it's all too easy to stick with Google Search if you're also a user of its productivity tools, like Gmail, Sheets, Docs, and more. And let's not forget the habit of taking to Google for prompts that have been built over the course of decades. Certainly, entering “google.com” on your web browser is pretty much muscle memory for many of us at this point!
Of course, LLM's propensity to “hallucinate” is another reason to take to Google for serious searches (based on real facts) over Bing, regardless of how much better it is with ChatGPT-4 enabled.
"You get up in the morning, you brush your teeth, and you search on Google," Nadella said in front of the Department of Justice. "With that level of habit forming, the only way to change is by changing defaults."
He's right. It takes more than just AI innovation to change consumer behavior. Apple may be the company that can bring forth the real sea change in the search space. Reportedly, Microsoft pitched Bing to Apple as a replacement for its default search option way back in 2020. Ultimately, Microsoft pointed the finger at Google for the deal's ultimate demise.
So far, Nadella is doing a great job of redirecting anti-trust scrutiny away from his firm and towards one of its biggest rivals - at least in the area of search. As it stands, Bing does not look like a Google-killer, even with the power of ChatGPT on its side. It's not even close.
The Bottom Line
Microsoft stock may be one of the more "obvious" AI picks right here. The same goes for Alphabet. That said, markets may still be underestimating the behemoth's potential, especially after the latest 12% pullback in MSFT.
Wells Fargo's Michael Turrin thinks Microsoft stock is worthy of his firm's Tactical Ideas List, thanks to its "favorable path" forward and further upside due to AI. Turrin has a $400 price target, suggesting the stock could make a more than 25% upward move from here.
Turrin could be right to pound the table on shares. Microsoft may be one of the most "obvious" AI plays right now. But that doesn't mean it's not an opportunity hiding in plain sight.
On the date of publication, Joey Frenette had a position in: MSFT , AAPL , GOOG . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
