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MSFT gained almost 4% today because they announced a higher-than-expected price for Microsoft Office 365 Copilot, which has AI features built in. The AI uses the same Large Language Model (LLM) as Open AI's ChatGPT. For example, Copilot includes a feature called Business Chat. According to the company,

"Business Chat works across the LLM, the Microsoft 365 apps, and your data ' your calendar, emails, chats, documents, meetings and contacts ' to do things you've never been able to do before. You can give it natural language prompts like 'Tell my team how we updated the product strategy,' and it will generate a status update based on the morning's meetings, emails and chat threads."

https://blogs.microsoft.com/blog/2023/03/16/introd...

This is going to be a productivity game changer. For example, today's LLMs can take a set of meeting notes, and generate a TODO list of action items from the tasks discussed in the notes. You can also do things like generate a 2-paragraph Executive Summary from a 10-page strategy document.

Copilot "will cost $30 per user per month on top of what most business customers already pay." So it's almost double what business users pay today per user.

"Microsoft's Chief Financial Officer Amy Hood has said the company's new AI products will become the software company's fastest business to hit $10 billion."

https://fortune.com/2023/07/18/microsoft-office-36...

Good insight mechinv. Thank you! AI is hot right now and having a big impact on stock prices when companies report new AI products. I'm not sure how they define "AI products" .. "hitting $10 billion" though, as presumably the AI is largely enhancing existing products (or worse, having to remain competitive with other people investing a lot of development costs into AI) rather than creating new categories. Though we'll get some the latter too I guess.

Copilot "will cost $30 per user per month on top of what most business customers already pay." So it's almost double what business users pay today per user.

Thank you, mechinv, for getting this board going. So much interesting stuff going on at Microsoft under Satya Nadella, I look forward to the conversation here.

I don't know how much visibility we'll have into Copilot uptake rates, but they should offer insight into just how indispensable AI seems to enterprises at this stage. On the one hand, you can see a lot of productivity value in giving employees these tools. On the other, doubling enterprise spend on Microsoft's office suite, presumably unbudgeted, seems like it could be a problem for companies carefully watching their spending.

With the odds of the Activision acquisition closing later this year now very good, Microsoft will go from zero to 60 in mobile gaming, another big growth opportunity.

At $355 per share, the stock is up nearly 50% this year. The trailing P/E is 38. The company is a monster, but I can't help thinking the stock has gotten a little ahead of itself.

One of the reason Microsoft's Azure Cloud is growing so fast is because both Fortune 500s and SMBs tend to have their business users in Active Directory (AD) for logins and authentication. So when they make the decision that they need to move to the Cloud for business agility and pay-as-you-go pricing, these businesses just need to migrate their on-premises AD to Azure AD, and their users can instantly log into Cloud VMs.

It's just a small step from there to start migrating terabytes of database data and files to Azure, where storage is cheap and available instantly.

And because the data is in Azure Cloud, machine learning models like Chat GPT will be run there for inferences and fine tuning. This is an example of the "rich getting richer". Microsoft's success is feeding on itself. Their CFO Amy Hood's expectation that AI-driven Office Copilot will be the fastest new product to hit $10 billion in annual revenue is a perfect example of what I said on the Berkshire board: these megacap software-driven companies can leverage their existing tech and customer footprint to create new multi-billion revenue streams that nobody could have predicted a few months ago.

That being said. Amazon, the #1 company in Cloud services, is not sitting still, and keeps adding billions in new revenue every year itself. We just heard today that Meta (fka Facebook) has just released its monster Gen AI model, LLaMa, as open source, and Amazon Web Services is already making it available as a Chat GPT competitor in its cloud. AWS also partners with AI21 Labs, Stability AI and Hugging Face to offer Gen AI models.

We are living in very interesting times.

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