Microsoft Challenges Google with OpenAI Partnership

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In the recent weeks, most technology companies have announced big cost containment measures. Microsoft (Nasdaq: MSFT) was no outlier, as it announced plans to lay off 10,000 workers. The recent second quarter results were not impressive either, as the company missed expectations and reported significant reduction in profits.

Microsoft’s Financials

Microsoft’s second quarter revenues grew 2% to $52.7 billion, slightly behind the market’s forecast of $52.94 billion. Net profits fell 12% to $16.4 billion. Net income was $2.32 per share, ahead of the Street’s forecast of $2.29 per share.

Revenues from the Intelligent Cloud segment grew 24% to $21.5 billion driven by 38% growth from Azure and other cloud services. Revenues from the Productivity & Business Solutions segment, which includes LinkedIn, grew 13% to $17 billion. Revenues from the More Personal Computing segment, which includes Windows, Xbox, and Surface, fell 16% to $14.2 billion.

For the third quarter, Microsoft forecast revenues of $50.5-$51.5 billion, falling significantly short of the market expectations of $52.4 billion. A year ago, Microsoft had generated sales of $49.4 billion. It also forecast a deceleration?of Azure sales growth to 30%-31% in constant currency.

Microsoft’s AI Growth

Recently, Microsoft announced a partnership with Viasat to help provide nearly 10 million people with access to the internet, including 5 million across Africa. Viasat will work with Microsoft’s Airband Initiative to expand Airband’s work in the Democratic Republic of the Congo, Nigeria, Guatemala, Mexico, and the US. It will also prioritize the expansion of the program to Egypt, Senegal, and Angola to deliver internet connection.

Microsoft’s OpenAI Partnership

Microsoft also announced the third phase of its partnership with OpenAI to accelerate AI breakthroughs and to ensure that the benefits are shared globally. As part of the partnership, Microsoft will invest $10 billion in OpenAI for the deployment and development of specialized supercomputing systems. It will help accelerate independent AI research, in addition to also building out Azure’s leading AI infrastructure to help customers build and deploy AI applications on a global scale.

Microsoft will also deploy OpenAI models across consumer and enterprise products, including Microsoft’s Azure OpenAI Service, empowering developers to build AI applications through direct access to OpenAI models backed by Azure’s enterprise-grade capabilities and AI-optimized infrastructure and tools. Azure will also have the ability to power all OpenAI workloads across research, products, and API services.

Recently, OpenAI and its ChatGPT have created a buzz in the industry. Microsoft is expected to be adding ChatGPT to its Bing search engine. If Microsoft were to do that, it may finally make Bing a real competitor to Google’s search. Reports suggest that Google is already stepping up its game to address ChatGPT’s challenge. Microsoft is hoping to beat Google at its game.

Its stock is trading at $248 with a market capitalization of $1.85 trillion. It hit a 52-week high of $315.95 in March last year and a 52-week low of $213.43 in October last year.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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