ChatGPT Is Microsoft's Opportunity To Up The Ante Against Google: Analyst Says Nadella Not Going To 'Repeat' 90s Mistake

Microsoft Corp. MSFT is rumored to be contemplating a $10 billion investment to integrate OpenAI technology into its search tools.

What Happened: Microsoft is being aggressive with the move as ChatGPT is one of the most innovative AI technologies seen in the industry, Wedbush analyst Daniel Ives said. Clearly, the company doesn’t want to be “left behind on what could be a potential game-changing AI investment,” he added.

Microsoft’s investment values OpenAI at about $29 billion and will fetch the software giant 75% of the latter’s profits until it recoups its investment, Ives noted. Then the association will revert to a structure where Microsoft would hold a 49% stake in OpenAI, he added.

Redmond had made an initial investment of $1 billion in OpenAI in 2019 to implement AI software across its Bing search engine and Microsoft Design App, the analyst said.

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ChatGPT, A Potential Game Changer: While incorporating OpenAI’s new features into existing programs, Microsoft could also work with it to create a game-changing technology over the next decade, Ives said.

Although ChatGPT is a high cash-burn business now, the analyst sees the investment as a strategic step for Microsoft to double down on its AI strategy.

Despite Bing’s small share of the search engine market, Microsoft could look to make a dent into Alphabet Inc.’s GOOGL GOOG dominant positioning by offering more advanced search capabilities and language models, Ives said.

The analyst noted that Microsoft cut back on its investment vision in the 1990s during its antitrust battle, thus missing out on key social and mobile trends that drove tech over the next few decades.

“Nadella is not going to repeat the same mistakes and we believe this strategic investment is a smart poker move in this AI arms race that is taking place globally,” Ives added.

Ives has an Outperform rating and $290 price target for Microsoft shares.

Price Action: In premarket trading on Wednesday, Microsoft shares were rising 0.50%, to $230, according to Benzinga Pro data.

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