{"id":87373,"date":"2023-11-22T04:43:46","date_gmt":"2023-11-22T09:43:46","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/openai-chaos-could-hurt-microsoft-analysts-warn\/"},"modified":"2023-11-22T04:43:49","modified_gmt":"2023-11-22T09:43:49","slug":"openai-chaos-could-hurt-microsoft-analysts-warn","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=87373","title":{"rendered":"OpenAI Chaos Could Hurt Microsoft, Analysts Warn"},"content":{"rendered":"
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Investors are having some second thoughts on what the ongoing management crisis at OpenAI will mean for
\n Microsoft,<\/span>
\n the generative-artificial-intelligence software firm\u2019s largest investor, and most important ally.<\/p>\n

Over the last few days, the OpenAI board pushed out CEO Sam Altman, which spurred the resignation of Greg Brockman, the company\u2019s president. Both men have now been hired by Microsoft (ticker: MSFT), although there remains speculation that the two men could yet return to their old roles at OpenAI, perhaps with a new corporate governance structure in place.<\/p>\n

\n

Microsoft stock sold off on Friday when news of the OpenAI putsch broke, but rebounded impressively on Monday when Microsoft disclosed it is scooping up Altman, Brockman, and potentially a slew of other OpenAI refugees. Meanwhile, the vast majority of OpenAI\u2019s employees threatened to quit unless Altman and Brockman were restored to their original jobs. But the stock is off 1.5% on Tuesday as investors take a closer look at the risks to Microsoft posted by the current situation.<\/p>\n

Microsoft CEO Satya Nadella gets kudos from the Street for acting quickly to both cement ties to OpenAI while securing the services of its once and perhaps future leaders. And it\u2019s true that if most of the OpenAI team ends up following Altman to Microsoft, Nadella will have magically hired some of the leading minds in AI without buying their current employer, giving him more control of the future of AI.<\/p>\n

But there are complications, as even Microsoft bulls will concede. Among other issues, the situation risks the loss of a big customer for Azure, adds complexity to the future of the company\u2019s own software offerings, and could increase the costs of developing AI models.\u00a0<\/p>\n

As Morgan Stanley analyst Keith Weiss pointed out in a research note Tuesday, \u201cthe situation continues to be fluid.\u201d Weiss notes that OpenAI is a large customer for Microsoft\u2019s Azure cloud-computing services\u2014he asserts that OpenAI likely contributed most of the three percentage points of growth in the company\u2019s Azure business in the September quarter attributed to AI, which he thinks represented about $400 million in revenue in the quarter. He also points out that OpenAI has served as Microsoft\u2019s AI research lab, leveraging OpenAI\u2019s GPT software to build a wide range of generative-AI solutions.<\/p>\n

\u201cWhile we do not have direct knowledge of the contractual relationship between Microsoft and OpenAI, given the nature of the investment we would be very surprised if the agreement did not give source code rights to Microsoft for the models currently used within their products,\u201d Weiss writes. \u201cGiven that assumption, the risk to Microsoft likely lies in the future-development road map for the GPT model and the willingness of developers to build on top of the GPT model if that road map is uncertain. The need to assuage developers building on top of the model was likely a major factor in Microsoft\u2019s desire to bring Sam Altman and Greg Brockman into the company.\u201d<\/p>\n

The bottom line, Weiss writes, is that Microsoft is trying to both hang on to a large customer, and maintain the innovation road map for OpenAI\u2019s GPT model going forward.<\/p>\n

\u201cWhile this is possible with a new leadership team at OpenAI and the establishment of a research lab led by Sam Altman and Greg Brockman within Microsoft, this route entails higher risk to the durability of ChatGPT growth and higher potential for significant delays in the innovation road map for the GPT model,\u201d Weiss concludes.<\/p>\n

UBS analyst Karl Keirstead agrees that there are risks here for Microsoft that the Street might not be fully appreciating. \u201cOpenAI underpins Microsoft\u2019s AI story, and if OpenAI remains in turmoil with Microsoft\u2019s internal \u2018AltmanAI\u2019 efforts taking time to bear fruit, then the risk profile of Microsoft\u2019s AI story just went up materially, in our view,\u201d Keirstead writes in a research note. \u201cA loss of customer confidence in OpenAI is a net negative for Microsoft, there is no way to sugarcoat that, and even a pause in OpenAI\u2019s spending growth on compute resources could impact reported Azure growth.\u201d<\/p>\n

But there\u2019s a more upbeat way to think about the situation, Keirstead concedes: \u201cIf Microsoft can find a way to acquire\/hire OpenAI\u2019s [intellectual property], then over the medium term, we think Microsoft would be in a position to effectively rebuild OpenAI internally at a fraction of the cost, without being encumbered by the prior partnership constraints.\u201d<\/p>\n

Macquarie analyst Frederick Havemeyer, who like his peers rates Microsoft stock at Buy, also sees risks here for Microsoft. Among other things, the analyst notes that an OpenAI collapse could result in some talent defecting to rival AI software companies.<\/p>\n

\u201cThose not joining Microsoft could walk out of OpenAI with their collective knowledge of building, running, and optimizing cutting-edge AI models\u2014potentially improving OpenAI competitors, or pollinating a new cohort of start-ups,\u201d Havemeyer writes. \u201cThird parties such as
\n Salesforce
\n (CRM) are offering to match the cash and equity compensation of OpenAI researchers joining their teams. We also think there could be cybersecurity risks from disgruntled employees who have watched their significant liquidity potentially evaporate due to their board\u2019s actions.\u201d<\/p>\n

Goldman Sachs analyst Kash Rangan, yet another Microsoft bull, cautions that \u201cit will be challenging\u201d for Microsoft to build the equivalent of OpenAI on its own. Writes Rangan: \u201cEven if Microsoft was able to hire a substantial number of engineers for this project, it would be a time-consuming and demanding task, notwithstanding IP consideration.\u201d<\/p>\n

Write to Eric J. Savitz at eric.savitz@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Investors are having some second thoughts on what the ongoing management crisis at OpenAI will mean for Microsoft, the generative-artificial-intelligence software firm\u2019s largest investor, and most important ally. Over the last few days, the OpenAI board pushed out CEO Sam Altman, which spurred the resignation of Greg Brockman, the company\u2019s president. Both men have now […]<\/p>\n","protected":false},"author":1,"featured_media":87374,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-87373","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nOpenAI Chaos Could Hurt Microsoft, Analysts Warn | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Investors are having some second thoughts on what the ongoing management crisis at OpenAI will mean for Microsoft, the generative-artificial-intelligence\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=87373\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta 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