Yesterday (23.01), OpenAI - the technology company that is the creator of the ChatGPT language model - reported in an announcement the entry into the next phase of its expanded partnership with Microsoft. We will learn the latter's quarterly report today after the close of trading. What could we learn from the announcement and what can we expect from the company's financial results?
The history of these two companies
The non-commercial organisation OpenAI was founded in 2015. Elon Musk, Ilya Sutskever, Greg Brockman and Wojciech Zaremba. The company's goal is to promote and develop artificial intelligence in a responsible and safe way for humans.
Microsoft has been working with OpenAI since 2019. As part of this collaboration, Microsoft is providing the Azure cloud as a platform to run OpenAI models, as well as supporting the development and exploration of new artificial intelligence technologies. In 2020. Microsoft and OpenAI announced a collaboration to develop GPT-3, one of the largest language models in the world. In 2021. Microsoft invested $1 billion in OpenAI. We have now heard of a further investment of $10bn.
As the company states in the announcement: “We’ve worked together to build multiple supercomputing systems powered by Azure, which we use to train all of our models. Azure’s unique architecture design has been crucial in delivering best-in-class performance and scale for our AI training and inference workloads. Microsoft will increase their investment in these systems to accelerate our independent research and Azure will remain the exclusive cloud provider for all OpenAI workloads across our research, API and products"
Supporting programmers and graphic designers is the next step
"We’ve partnered with Microsoft to deploy our technology through our API and the Azure OpenAI Service—enabling enterprise and developers to build on top of GPT, DALL·E, and Codex. We’ve also worked together to build OpenAI’s technology into apps like GitHub Copilot and Microsoft Designer." - the OpenAI announcement continued. It follows that we will see the use of artificial intelligence in tools such as GitHub, an app to support developers' work, and Microsoft's new Designer service for graphic design. It is intended to compete with Canva, which currently has around 100 million active users.
Can we expect a surprise from Microsoft's report?
The tech giant's business falls into three main categories: Productivity and Business Processes (productivity and business process support tools), Intelligent Cloud (all cloud computing services) and More Personal Computing (mainly Windows or gaming). Historically, these segments have accounted for a similar share of the company's revenue, but especially in recent years, cloud services are starting to play a key role, increasing their share to 40 per cent. According to Zacks, a portal that analyses financial data and predicts possible surprises in financial results, the Zacks Earnings ESP (expected prediction surprise) ratio is currently at 0.34 per cent, which means that it might be less possible to be a significant surprise relative to expected earnings per share in Q4 2022. This currently stands at USD 2.3 (previously USD 2.29).
What does Wall Street think of Microsoft's share price?
According to the Market Screener portal, the company has 51 recommendations, and among them, the predominant one reads: "Buy". The average target price is set at USD 291.72, 20 per cent above the last closing price. The highest target price is at USD 411 and the lowest is USD 212, which is below the last closing price.
Source: Conotoxia MT5, Microsoft, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)