Sam Altman’s weekend blog post has caused quite a stir among AI enthusiasts. He posted that OpenAI is now confident it knows how to develop Artificial General Intelligence (AGI). For those who don’t know, AGI refers to an AI system that has achieved human-like intelligence. This definition is a point of contention, as we will shortly find out.
For some, AGI will unlock great value for businesses. For others, it is a threat to human existence, worrying how an AI force could turn against humans and destroy them. For Microsoft, the risks and rewards associated with AGI are hard to figure out. In fact, it is the relationship between OpenAI and Microsoft that makes this development a risk for the Windows maker.
Back in 2019, Microsoft invested $1.75 billion in OpenAI. Yet it does not own any portion of the company. It is, however, entitled to a share of OpenAI’s profits. But OpenAI is also a non-profit organization. Microsoft even gave up the seat on OpenAI’s board of directions. You see, the relationship between the two is hard to figure out. With AGI on the horizon, it gets even trickier.
OpenAI and Microsoft have their own definition of AGI. In 2023, the two companies signed an agreement that defined AGI as an AI system that could generate at least $100 billion in profits. So when Altman says they’ve figured out how to build AGI as they have traditionally understood it, he probably isn’t referring to the agreed definition mentioned above. This is important because if Altman’s AGI can generate $100 billion in profits, it essentially drives Microsoft out of the profit-sharing agreement.
The $100 billion profit clause also brings accounting into play. We know that OpenAI is losing money on ChatGPT. We also know that according to the company, profitability isn’t expected till 2029. Even if the AGI arrives and can bring in trillions of dollars of revenue, it could still keep Microsoft in play assuming profitability stays below the $100 billion mark.
For OpenAI, achieving AGI means successfully driving out Microsoft from their business. This would also mean they can bring new investors on board. This is what makes Altman’s blog post all the more interesting. Microsoft investors are rightly wondering if OpenAI’s advancements are good for the company or not. It seems, for now, Microsoft is in safe hands. Even if it is eventually driven out of OpenAI, it would have benefitted hugely from the developed AGI and incorporated it into its main business.
Microsoft is 2nd on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 279 hedge fund portfolios held MSFT at the end of the third quarter which was 279 in the previous quarter. While we acknowledge the potential of MSFT as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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