Interactive Investor

Why you should pay close attention to ChatGPT

13th January 2023 12:34

by Stéphane Renevier from Finimize

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This startup has everyone speculating about what it might mean for all kinds of industries – and for tech giants like Microsoft and Google.

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ChatGPT has generated a ton of buzz since it came on the scene just a month ago. With a sophisticated artificial intelligence (AI) chatbot that’s miles ahead of what came before it, the startup has everyone speculating about what it might mean for all kinds of industries – and for tech giants like Microsoft and Google.

What is ChatGPT?

ChatGPT is a powerful computer program that can process and respond to text a lot like a person would. It was trained on a humongous amount of information and at its core has a type of neural network, a system designed to mimic the human brain. This allows it to identify patterns and structures in languages and give you a coherent answer to almost any question you throw at it.

If that sounds a lot like what Alexa or Siri can do, you need to imagine a big step forward. ChatGPT is part of a broader category called generative AI – a type of artificial intelligence that can produce new and unique examples, rather than simply recognizing or classifying examples from a fixed set of possibilities. Imagine a computer program that can take pictures of hamsters and use them to make new pictures of hamsters that it has never seen before. Put more simply, it can produce original content, and allow users to become creators and not just consumers.

Why should you care?

ChatGPT is not a finished product yet (it’s still a bit more blarney artist than trusted advisor), but what it can already do is mind-blowing: from helping you write computer codes, to summarizing a book in a few bullet points (or in Justin Bieber style, if that’s your thing). If you don’t believe me, just try it here.

Generative models like ChatGPT have the potential to disrupt a wide range of industries and applications. Customer service and journalism, for a start, but also education, finance, biology, law, transportation, defense, healthcare. It’s actually hard to imagine a sector that wouldn’t eventually be impacted to some degree. This is why so many pundits say it reminds them of the early days of the internet or smartphones. And while it will likely render many businesses obsolete, it will also create lots of opportunities for those that can innovate alongside it.

What about that deal with Microsoft?

That’s exciting. This week there were reports that Microsoft Corp (NASDAQ:MSFT), which invested $1 billion in OpenAI in 2019, is in talks to invest an additional $10 billion in the company, valuing the startup at around $29 billion. If the deal goes through, Microsoft would earn 75% of OpenAI's profits until it recoups its initial investment, and would then own 49% of the company.

Such a deal would not only allow Microsoft to boost the appeal of its cringey search engine Bing, but it would also open the door to integrating ChatGPT into products like Excel, Word, Outlook, and Powerpoint. (Just imagine telling Excel to run a quick valuation model on your favorite stock.) By working closely with one of the world’s most innovative startups, Microsoft could also open new doors, and over the long term, that could further strengthen its already well-diversified revenue stream.

Now, of course, there’s no guarantee that OpenAI will live up to its price tag (even the most exciting new technologies can become obsolete overnight) and with its $1 billion revenue target for 2024, OpenAI would be contributing less than 1% to Microsoft’s total annual bottom line. But it certainly does seem like a savvy poker move from one of the OGs of tech – one with significant optionality attached.

OK, so is ChatGPT a Google killer like people say?

That’s quite unlikely – at least for now. Even if ChatGPT eats into some of its (considerable) search engine market share and potentially shrinks its margins, Google (and parent Alphabet Inc Class A (NASDAQ:GOOGL)) isn’t likely facing an existential threat. For starters, people have built the habit of using Google for decades, and a good rule of thumb is that people won’t change a habit unless the alternative is at least ten times better. ChatGPT might reach that point, but it’ll need some big improvements first: its weaknesses – for example, its biases and wrong answers – become evident after using it just a few times.

What’s more, Google is a leader in AI research and development, and has probably already developed equally (if not more) powerful algorithms. If it hasn’t made its own technology public, that may be because it knows the reputational risks are high if something goes wrong, or because it doesn’t want to cannibalize the huge money it makes on ads in its search engine.

And finally, ChatGPT is currently about seven times more expensive per query than paid search (although this could come down with the Microsoft deal), which should cap ChatGPT’s growth in the medium term.

What’s the opportunity, then?

When AI was used to create maps, the world didn’t benefit from better maps alone. It benefited from cheaper cab fares, thanks to the creation of Uber. New technologies often bring surprises: their best use cases are sometimes found in areas outside of what was initially imagined. Sure, companies that have invested heavily in AI – like Tesla Inc (NASDAQ:TSLA)Amazon.com Inc (NASDAQ:AMZN), and Meta Platforms Inc Class A (NASDAQ:META), and chipmakers like NVIDIA Corp (NASDAQ:NVDA) may benefit directly from the wider adoption of generative AI. However, its biggest winners may still be undiscovered. So keep an eye on the field and be open to new possibilities.

In the meantime, the best investment you can make is in yourself, so try out the technology and start thinking about how you can use it to be more creative, more efficient, and a better investor too.

Stéphane Renevier is a global markets analyst at finimize.

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