Microsoft, at its developer conference, showed how it is doubling down on AI-enabled software. However, it’s the technology giant’s hardware ambitions that could upend the artificial intelligence market.
For
Microsoft
(ticker: MSFT), one of the biggest takeaways from its Ignite conference this week was early positivity around 365 Copilot, an AI-based companion for its productivity software.
Analysts were enthusiastic, with Wedbush’s Daniel Ives saying Copilot’s introduction will be the “game changing” moment for AI monetization.
“Our partner checks have been incrementally strong around Co-Pilot interest/deployments with Microsoft customers and ultimately we estimate this could add another ~$20 billion to Redmond’s top-line by 2025,” wrote Ives in a research note.
Ives raised his target price on Microsoft stock to $425 from $400 and kept an Outperform rating. Microsoft shares were up 1.4% at $374.90 in early trading on Thursday.
Another important announcement from the conference: Microsoft is joining in the trend of creating in-house chips with its Azure Maia AI Accelerator.
The Maia chip can perform functions such as large-language model training and inference—the process of generating answers from AI models. That means Microsoft and its AI partner OpenAI have an alternative to chips from
Nvidia
(NVDA). Microsoft said it collaborated with OpenAI on the design of the Maia chip.
“You have to assume today’s and next-generation OpenAI models will be trained and inferenced on Maia,” said Patrick Moorhead, founder of Moor Insights & Strategy on X, formerly known as Twitter.
That doesn’t mean Microsoft is contemplating a wholesale switch away from Nvidia, which still has a moat in terms of its software ecosystem and is releasing increasingly more advanced AI chips. Microsoft also said it would offer its cloud customers new chips from Nvidia and
Advanced Micro Devices
(AMD).
However, having its own AI chips will likely give Microsoft a stronger bargaining position. Google-parent
Alphabet
(GOOGL) and
Amazon.com
(AMZN) also have their own in-house AI chips.
The knock-on effects don’t stop at Nvidia. Microsoft also announced a data-center computer processor, or CPU, named Azure Cobalt, based on a licensed design from chip designer
Arm Holdings
(ARM). That brings it into the home territory of
Intel
(INTC).
“This trend line is set to continue and really these moves should surprise no one, especially the likes of Intel, AMD, or NVIDIA, which will have their work cut out as Arm continues to enable hyperscalers to build highly performant and compelling options for their customers,” Daniel Newman, CEO of The Futurum Group, told Barron’s.
Nvidia shares were flat in early morning trading Thursday, while AMD stock was up 0.6%. Intel stock jumped 3.1% on an upgrade from Mizuho Securities.
Write to Adam Clark at [email protected]
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