Microsoft Brings Its AI Behemoth to the Masses
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| By Jon Markman |
It is the beginning of a new year, and the AI buzz is building. The hype is real. This is a BIG opportunity for investors in the right businesses.
Microsoft (MSFT) product managers announced Monday that another premium Copilot experience is rolling out. The expansion is a tell. Demand for AI is stronger than anticipated.
To be clear, the new AI experience — Microsoft Copilot Pro — is not Microsoft Copilot 365.
This is confusing, I understand. Unfortunately, large technology companies are not great with nomenclature. Don’t get things twisted, though. This business is going to be huge.
Microsoft Copilot 365 is an enterprise AI that is embedded within the cloud-based 365 productivity suite. This AI tool is especially powerful because Copilot considers context for the logged-in account holder. This means the AI assistant has access to read emails, summarize content and generate responses based on content.
Copilot can even build spreadsheets and power point presentations based on context. It is a powerful productivity tool with a dramatic return on investment.
More importantly, all of the data is protected inside the enterprise silo. This is vital to corporate customers who are increasingly worried about cybersecurity and data protection. Copilot is a home run for enterprises.
The benefit to Microsoft should not be ignored. Copilot 365 creates another moat, a distinct advantage over competitors. Copilot 365 increases the costs of switching away from Microsoft enterprise services, including Azure, the firm’s fast-growing cloud computing platform.
Analysts were stunned in July 2023 when executives at Microsoft launched Copilot 365. At $30 monthly per license, the fee seemed excessive. Microsoft generated $63.4 million in 2022 from 365 licenses, based on 345 million paid seats.
Based on the pricing, researchers at Jefferies and Bank of America immediately raised the price target for shares of Microsoft. And Karl Keirstead, an analyst at UBS, said Copilot fees could add up to $4 billion in annual sales by 2025.
Copilot Expansion for the Masses
Copilot Pro brings many of the Copilot 365 capabilities to non-corporate users for $20 per month per seat.
The official Microsoft blog notes that subscribers will be able to create custom Copilot assistants to write emails, help code, design and perform research, among other tasks.
Although the Pro version will not be contextually aware, subscribers will have the option to export data to their connected Microsoft products, such as Outlook, Word and PowerPoint.
iOS and Android smartphones will also get Copilot via dedicated mobile applications.
Small businesses have been clamoring for these features and general Copilot availability. Until now, Copilot subscriptions were restricted to corporations willing to pony up for a minimum license of 300 seats. This Copilot envy from small businesses has been amplified by stories of fantastic increases in productivity at large businesses.
Last May, The Times reported that Octopus Energy, a U.K. firm, used a trial version of Copilot to write generative emails to customers. Satisfaction increased from 65% to 85%, while saving the company millions in human labor costs.
Increased productivity is the big selling feature for Copilot.
It is not hard to imagine smaller companies rolling out Copilot to salespeople, analysts, software developers and executives. Saving even one hour per month, the cost of a subscription, could lead to a dramatic return on investment. Deployed correctly, Copilot could significantly impact the bottom line of a corporation.
The buzz for investors is even more important.
They are currently skeptical about AI. Many feel it is overhyped and will not catch on with enterprises.
This is unlikely …
Microsoft executives had a pilot program long before the official launch. They consulted with enterprises regarding pricing and availability. When executives at the Redmond, Washington-based company report earnings on Jan. 23, they should announce that Copilot sales exceeded forecasts.
Buzz is important. What investors believe about the future drives share prices.
And it could be an opportunity to make a quick buck on one of the largest tech companies in the world …
At $390, Microsoft shares trade at 30 times forward earnings and 13.3 times sales. These metrics are at the higher end of the historical range.
However, this is the beginning of a major new business at Microsoft. It’s a revenue stream with extremely strong competitive advantages.
My Weiss Technology Portfolio Members are up nearly 500% already on Microsoft. That doesn’t mean the ride is over. Here’s an opportunity.
All the best,
Jon D. Markman
P.S. AI continues to drive investors and markets. Yet, do you really know what it takes to develop it? My colleague, Chris Graebe, recently dug into it all and found something shocking … something that could break AI development. Check it out here.
