Microsoft Stock Rallies As Next Generation ChatGPT-4 Is Released

Key Takeaways

• OpenAI has released the latest version of their AI chatbot, ChatGPT-4
• Microsoft stock is up 6.5% this week off the back of the release, after the company announced a $10 billion, multi-year equity and partnership deal with OpenAI
• OpenAI has received some criticism surrounding the secrecy of the details of the release, after transitioning from a not-for-profit to a for-profit company.

Just as the conversation around ChatGPT had begun to die down, the next generation of the natural language processing software, GPT4, has been released. It offers up improvements in scope and capabilities of the model, with proponents believing it to be another major step forward in the tech.

Microsoft is a major equity partner of OpenAI, the company who has created ChatGPT, and their stock price has gained 6.5% so far this week.

It’s the latest positive result for one of tech’s oldest and biggest companies, which has managed to pare back much of their 2022 stock price losses so far in 2023. But with Google introducing AI into their suite of Workspace products like Docs and Sheets, the AI wars are just getting hotter.

For investors, it’s a shake up that has the potential to be very lucrative, or very damaging.

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Microsoft’s recent stock performance

Despite being one of the oldest and most valuable tech companies in the world, Microsoft wasn’t immune to the major sell off that hit the sector last year. Over the course of 2022, Microsoft stock was down over 28%.

While that’s not a great result for investors, it’s significantly better than some of their big name competition, including Meta (-64.45%), Alphabet (-39.15%) and Amazon (-50.71%).

But so far in 2023, Microsoft’s fortunes have begun to turnaround. Like most of their competitors, Microsoft has put an increased focus on efficiency this year, and announced plans to layoff 10,000 employees in January.

This announcement bolstered the stock price, as shareholders looked forward to lower operating costs and, hopefully, greater profits.

But it’s not just layoffs that have boosted Microsoft’s stock price.

OpenAI’s ChatGPT AI language model has taken the tech world by storm, and Microsoft was an early investor in the company. At the end of January this year, Microsoft announced that they’d be doubling down on this investment, with a $10 billion cash injection for OpenAI.

As part of the deal, Microsoft has begun integrating ChatGPT technology into their suite of products, including Bing search and Microsoft Teams.

All of this has led to a solid start to 2023 for Microsoft shareholders. The stock is up 10.79% as of the market close on Wednesday, with a gain of 6.5% just this week. That’s likely due, at least partly, due to the release of the latest generation of ChatGPT — GPT-4.

Details of the ChatGPT-4 release

The training dataset for ChatGPT-4 is significantly larger than that of the previous version, ChatGPT-3.5. This theoretically makes the output much better, but OpenAI has controversially now closed their source code (more on that in a minute), making it impossible for anyone to look at this in detail.

ChatGPT-4 now has the ability to analyze and generate content in both image and text form. One example we’ve seen is sending ChatGPT a picture of the contents of a refrigerator, and then asking it to come up with a meal plan based on the contents.

The word limit is much higher. GPT-3.5 was limited to 3,000 word responses, whereas GPT-4 is now capable of providing responses up to 25,000.

This latest release has allowed OpenAI to tinker with the algorithm, based on the massive amounts of data and feedback they’ve received from users to this point. OpenAI has stated that the latest version is 82% less likely to provide a response to disallowed content.

It’s also supposedly 40% more factually correct.

OpenAI goes closed

But some of the biggest news with the new release is the fact that OpenAI has made the transition from an open source not-for-profit to a for profit company. The latest release provided very little detail on the behind-the-scenes making of ChatGPT-4, with the company now considering its technology proprietary.

This has raised plenty of eyebrows, including Elon Musk’s. He posed the question on Twitter as to how a company was allowed to raise millions as a non-profit (including a self-reported $100m from Musk himself), and then transition to a for-profit company.

That’s good news for Microsoft shareholders, as it means that the tech that the company is betting heavily on is less likely to be copied by competitors. But for those who believe in the power (and potential dangers) of AI, it can be seen as a way to keep game changing tech in the hands of a few powerful people.

What does the AI shakeup mean for investors?

We’re a long way off from anyone being declared the ‘winner’ in the AI race. In fact, we’re not likely to ever see a single company hold a monopoly on AI, and there’s anti-trust legislation designed to ensure that doesn’t happen.

The likelihood is that the AI landscape will look much like the internet and social media does now. There will be room for many companies to make substantial profits for shareholders, but some will fare better than others.

Search is a great example. Google’s parent company Alphabet doesn’t have a monopoly on the entire tech sector, but they do with search. Amazon has, by far, the biggest market share when it comes to cloud computing.

Microsoft plays in many spaces, and their access to this AI tech could see them leapfrog others in various different areas. For anyone who’s used the Bing chatbot, it’s fair to say they’re not there yet, but it could happen in the future.

The bottom line

The arrival of AI on the mainstream is the biggest potential shakeup to tech investing that we’ve seen in years. Maybe decades. Not only that, but tech stocks have been beaten down like crazy over the last year.

Combined, this makes it an incredibly exciting time to invest in tech. But, that doesn’t make it easy. This level of uncertainty and opportunity means there are going to be big winners, but likely some big losers too.

The Emerging Tech Kit offers a great way to get exposure to the tech sector, without having to run the risk of picking individual stocks yourself.

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