Microsoft (MSFT, Financial) stock has stayed hot over the past few weeks, even as the failure of Silicon Valley Bank (SIVB, Financial) caused broader markets to wobble. Indeed, Microsoft stock's rally seems unstoppable, thanks in part to its leading position in the so-called generative artificial intelligence (AI) race. As markets continue to slip over a lengthening list of economic concerns (rate hikes, recession, bank failures and more), I think it seems doubtful that the recent wave of AI hype will die anytime soon. I think Bing with GPT has a real chance of disrupting Alphabet's (GOOG, Financial)(GOOGL) Google.
The euphoric days of chasing momentum in tech came to a painful halt in January of 2022. The Federal Reserve has already taken away the easy-money punch bowl, and it doesn't look like it'll bring it back anytime soon, not with more inflation on schedule. Higher rates will probably hurt many Silicon Valley innovators.
Still, AI is one of the trends that I believe could continue to advance rapidly, with or without easy access to credit. AI represents so much more than just another tech fad to over-pay for, and Microsoft is one of the names that has taken an early lead with its ChatGPT partnership. Does AI face headwinds? Sure, but I say Microsoft can keep AI moving forward in the face of such headwinds thanks to its juggernaut status and financial strength.
Microsoft is riding high on AI hype
Microsoft's stake in OpenAI (the maker of AI offerings like language model ChatGPT) is impressive on its own. GPT has become a profound, viral success due to its ability to mimic real human language for the first time (though it's definitely not perfect). With Bing and other AI innovations coming soon to your favorite Microsoft-made application, it's hard not to be awed by the company as it looks to become the most influential force in generative AI.
The advancements to Microsoft's AI applications are coming in and fast - with the latest update, Bing AI's "Balanced" mode is getting quicker and snappier based on my interactions with it. With the ability to source URLs, it's becoming hard not to take my business (and questions) to Bing instead of Google.
Simply put, Bing gives solid answers in record time, saving users plenty of clicks. The only significant question mark is the reliability of responses to prompts. Bing can still make mistakes. The inclusion of sources, though, could help cut inaccurate information served up, or the very least, make it apparent that a particular detail is wrong.
Bing: A work in progress
Undoubtedly, Microsoft has shown that it's more than willing to take risks (mostly with its reputation) with the rollout of its Bing AI updates. Thus far, I believe the company has done a superb job of placing the appropriate guardrails with Bing. However, it's clear that it's very tough to have all the protective measures in place without going through a bit of trial and error.
Bing (and ChatGPT) are still prone to error. Users can poke and prod them to get them to break the rules or fall off the guardrails. With the ability to give a "Thumbs Up" or "Thumbs Down" and provide further feedback, though, the AI platform has a ton of users who are more than willing to test and help improve the search engine.
For every Bing or ChatGPT blunder you hear about in the headlines, Microsoft's AIs are likely taking steps to learn from such mistakes and grow. Generative AI is still very young, but I think it's tough to stop the momentum in its tracks as Microsoft looks to do its best to turn AI into a cash cow.
It'll take some time for generative AI to be a meaningful growth segment for a company as massive as Microsoft. It is a $2 trillion company, after all. If the rate of improvement continues through the years, though, I don't think it's overambitious to envision AI as the next big thing.
At this juncture, I don't think the "AI hype" is overblown in the slightest. The market likes what Microsoft has been dishing out lately, and as the company continues to add new features and functionality to Bing, I would be unsurprised if Microsoft stock becomes the premier big tech growth stock.
One intriguing new feature is the ability for users to "share" their responses from Bing. The ability to share opens doors to some sort of social aspect. Whether chatbots and AI are the next big step for social media, though, remains to be seen.
Final thoughts
OpenAI and Bing will surely get smarter with time. With better guardrails implemented with every batch of feedback the chatbots receive, Microsoft's AI also stands to get safer over time.
Ultimately, I think Microsoft's AI hype could help its stock move to much higher levels. If anything, the company's AI capabilities still seem underestimated, even with shares trading at a somewhat frothy price-earnings ratio of 30.
