Microsoft Is All-In on AI: 2 Ways It Will Benefit | The Motley Fool

With the public introduction of OpenAI's ChatGPT advanced chatbot just a few months ago, it's looking more and more likely that the tech industry has entered a new era. What artificial intelligence (AI) will look like in a few years and how exactly some companies will benefit from it are still unclear, but even with a lot of unknowns, it's becoming crystal clear that Microsoft (MSFT 0.46%) is trying to establish itself as an AI leader.

Not only has Microsoft already invested in OpenAI to advance its artificial intelligence developments, it has also moved quickly to put ChatGPT into its core products, including Office 365 and Azure. Here's why the company's early moves could pay off.

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AI for Microsoft 365 

Recently, the company said that it will integrate ChatGPT into its Microsoft 365 suite so that the bot will work seamlessly with the company's popular apps, including Word, Excel, PowerPoint, Outlook, and Teams.

Microsoft calls the AI integration Copilot, and it will do more than just generate text for users. The company said in a blog post that Copilot will access the Microsoft Graph (a user's email, meeting notes, presentations, and chats) to create new messages, proposals, and the like based on that information.

In short, it will act as a collaborator, helping to keep track of past work and notes in order to help users monitor where they are in a project, how they should answer a boss' question, or how to use it to analyze past meeting notes and create a new presentation. 

Copilot is only available to a select group of enterprises for testing right now and will be available to everyone in the coming months.

So how will Microsoft benefit from Copilot? By making its already-popular enterprise software even more valuable. Microsoft 365 has about 46% of the global market in office-suite technology right now. Alphabet -- with Google's G Suite -- edges out Microsoft with 48% of the market. Integrating AI into Microsoft 365 is the company's latest step to not just hold on to its position in this space, but also potentially outpace Google as well.

And by getting a jump-start in the AI software space, Microsoft is tapping into a market that's poised to rapidly expand over the next few years. Some estimates put the global AI software market at $850 billion by 2030, up from just $53 billion in 2021.

AI for Azure

In addition to software, Microsoft is also testing AI chatbot integration into its popular Azure cloud computing services. The company calls it Azure OpenAI Service, and its capabilities span content generation, summarizing conversations, and code generation.

For example, a company could sign up for Azure OpenAI service to help automatically respond to online questions from customers in a chat service, summarize the most important conversations so the company can learn more about what customers need, and use it to help developers code faster or even create apps through no-code applications.

As with Microsoft 365, the potential here is getting a head start in using some of the most advanced AI tools for a fast-growing market. Microsoft is charging $0.002 per 1,000 tokens (about 750 words) for the new service, but while it's still unclear how much Microsoft will make from this, the company is clearly trying to gain the upper hand in its cloud fight with Amazon. 

Microsoft already has the No. 2 cloud infrastructure service right now, with about 23% of the cloud market; Amazon Web Services (AWS) is ahead with 33%, and Google is behind with 11%. By quickly integrating the latest AI services into Azure, Microsoft has the opportunity to potentially expand its cloud position even further.

Azure has slowly eaten way at some of AWS' market share over the past few years (Azure held just 15% of the market at the end of 2018), and if Microsoft can convince enterprises that its Azure OpenAI services could help them make their cloud work more efficient, then it might be able to accelerate its gains in cloud market share.

Keep this in mind

It has been clear over the past couple of months that Microsoft is going all-in on AI. There will certainly be some hiccups along the way, but a few years from now, investors could be looking back and seeing that Microsoft was wise to forge ahead quickly.

There's no guarantee that AI will give Microsoft a lead in cloud computing and enterprise software, but with both markets expanding quickly over the coming years, the company's bet on this technology looks like a smart move.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Microsoft. The Motley Fool has a disclosure policy.