Image Source: Mike Mozart
By Brian Nelson, CFA
Not having to worry about an upstart taking ChatGPT to the finish line is a big relief for the newsletter portfolios. Having already invested $1 billion in ChatGPT’s owner OpenAI in 2019, Microsoft Corp. (MSFT) may invest as much as $10 billion more in the artificial intelligence (AI) chatbot. Reports indicate that Microsoft would own a 49% stake in OpenAI, while getting a 75% share of OpenAI’s earnings. The greater control over ChatGPT, of which we brought to readers attention in our December 5 note, “Maintaining Our Fair Value Estimates Across Ad-Driven Social Media Equities In Light of Long Term AI-Driven Chatbot Threats,” will likely augment Microsoft’s search technology and its web browser Bing, which is practically insignificant when compared to the dominance of search giant Alphabet’s (GOOG) (GOOGL) Google.
We include both Microsoft and Alphabet in the simulated Best Ideas Newsletter, so while the news may be incrementally negative for Alphabet, it is equally incrementally positive to Microsoft, and therefore largely net neutral on the simulated Best Ideas Newsletter portfolio. Big cap tech (XLV) and large cap growth have faced pressure during 2022, but the weakness last year may be just a blip in the longer-term trend, where we expect the leaders of the last decade to continue to lead the market, particularly after the drawdown during 2022. Many of the branded dividend payers are trading at lofty multiples, and we continue to find value across the big cap tech landscape, including Apple (AAPL), Alphabet, and Microsoft, but also Tesla (TSLA) in light of the latter’s recent pricing swoon.
ChatGPT is the real deal, in our view.
The application reached more than 1 million users in just a few days, and as we noted in our December 5 note, we were mighty impressed when we tried it out. Unlike search technology that provides a list of links and resources that may help you answer your question during the work process, ChatGPT actually gives the answer to the question, inquiry or demand. Right now, ChatGPT is not trained on the latest and greatest data, but once it has been, the technology could become a powerful alternative to search, in our view. We’re glad that Microsoft has recognized the long-term potential in this area, as it makes it easy for us to have exposure to this groundbreaking technology. Microsoft is already an idea in both the simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Alphabet remains a top-weighted consideration in the Best Ideas Newsletter portfolio.
We’re going to be hearing a lot more about artificial intelligence chatbot technologies in the coming years, and our initial interaction with ChatGPT a month ago indicates to us that it will be a gamechanger for a lot of industries. Microsoft’s continued backing in OpenAI, the owner of ChatGPT, will likely accelerate the technology’s development, and we expect it to eventually augment Microsoft’s own search technology and ad-driven revenue opportunities. Alphabet may have a few AI tricks up its own sleeve in its ‘Other Bets’ segment, so we’re not ruling out a highly competitive environment in this area in the coming years. We like that we include both Microsoft and Alphabet in the simulated newsletter portfolios and that we’re not forced to make a decision on whether a new upstart is worthy of inclusion. Our fair value estimate for both Microsoft and Alphabet remain unchanged at this time.
NOW READ (Dec 5): Maintaining Our Fair Value Estimates Across Ad-Driven Social Media Equities In Light of Long Term AI-Driven Chatbot Threats
Also tickerized for holdings in the SOCL.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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