Key Points:

• OpenAI’s high valuation raises questions about it’s ability to deliver in the future
• Microsoft’s (NASDAQ: MSFT) massive investment in OpenAI is under pressure as Elon Musk’s XAI joins the field.
• Microsoft’s stock has gone from darling to dud as AI investment confusion persists
• Instead of investing in OpenAI, or Microsoft, take a look at ‘The Next Nvidia’ instead.

Watch the Video

Edited Video Transcript:

[00:00:00] Douglas A. McIntyre: Open AI, you know, a lot of people put it in first place among the, the AI companies, um, 157 billion valuation based on the last round. Microsoft big position in this, they’ve invested a total of 13 billion in it. The most well known tranche was the one that was 10 in. Uh, I read today there’s tension between Microsoft and open AI about.

[00:00:31] Douglas A. McIntyre: Microsoft not getting enough access to energy for server farms. It’s a rumor, but you’re going to hear a lot more of this as there’s a battle for energy, but Microsoft stock is now underperforming for the year. And one of the reasons is, well, there are two reasons. The first one is, is that people don’t think AI is going to pay off, play off, pay off like a slot machine, uh, tomorrow, which a lot of people.

[00:00:55] Douglas A. McIntyre: The other thing that was is that there’s no guarantee that open AI is going to be the winner, or there may be two or three winners, which means that open AI is never going to be the walk off home run people thought.

[00:01:11] Lee Jackson: Absolutely. And again, as we know, so very, very well in technology, there’s always somebody who worked at open AI that will go start their own company.

[00:01:21] Lee Jackson: And, you know, they may, you know, build a better mousetrap and, and that’s inevitably what happens in big tech and why they do have a good headstart and, you know, Altman and, and everybody involved is super smart. You know, they’re always the smartest guys in the room, but again, uh, how did, how does the payoff come in from Microsoft?

[00:01:42] Lee Jackson: I mean, you’re more likely to get a better payoff, you know, with AI and an Apple iPhone than, than what, um, Microsoft can pay off.

[00:01:53] Douglas A. McIntyre: Well, I don’t like the idea of It’s good for Microsoft’s balance sheet to own the thing. That’s sort of like, uh, that’s like sort of a Warren Buffett argument is the guy owns it, they own it.

[00:02:06] Douglas A. McIntyre: So it’s worth something. But to me, the thing that I worry about the fact that Elon Musk is in this business. Okay. And he’s willing to devote as much money. He has a company called XAI. They have built what they claim is the largest AI installation in the world. That’s right in Tennessee, and they have people teaching the AI out there.

[00:02:32] Douglas A. McIntyre: I mean, you know, as you know, muscle build rockets and cars and, you know, move your hands around with a brain implant. I would not want to be up against him. And it certainly means that. You know, what they call the moat at business schools here, it’s not a wide moat. You’ve got some people jumping into it and 157 billion is a high valuation.

[00:02:56] Douglas A. McIntyre: Um, Microsoft has to show some delivery on this with, uh, You know, it’s Azure and it’s other AI based technologies or they’re going to look dumb.

[00:03:09] Lee Jackson: Yeah. And, and, and again, open AI really doesn’t make any money, you know, I mean, they have a product and all that. And yeah, you can pay, you know, for, for, uh, you know, a chat version that is better and does more.

[00:03:26] Lee Jackson: They don’t make any money. And, and if you combine the, the, the. Likely scenario that more come into the game, like you said, and especially musk, who is not only interested in that, but he’s interested in the search engine as well, you know, that doesn’t, you know, uh, sensor things. And so, if he gets involved in this, you’re exactly right.

[00:03:49] Lee Jackson: It could be really, uh, it could change the whole game.

[00:03:53] Douglas A. McIntyre: Well, I have to tell you, my view of this is that Microsoft was incredibly stupid. Uh, to put this much money into it, uh, particularly given that it’s not a moneymaker, it does not have a good moat. Um, Microsoft, I think, believed they needed to catch up in this area and they threw money at it.

[00:04:14] Douglas A. McIntyre: But the market is now looking at this and saying, we don’t like this. They put in too much money. There’s not enough money in the near term future from this. And therefore, its stock is performing poorly.

[00:04:30] Lee Jackson: Yeah, it is going to be interesting and you know, it never ceases to amaze me and we’ve had this discussion is is if people would stick, you know, Microsoft made such huge gains with Azure and, you know, everything was working perfectly.

[00:04:48] Lee Jackson: It’s like, stay on your game, stay on your game. Oh, no, no, no. There, there, there’s more that we can do when, when Azure and, and the other products, you know, operating system products and software is what is the bread and butter for them.

[00:05:03] Douglas A. McIntyre: Well. I think that within the next year or so, it’s going to be clear that there are two or three winners in this sector.

[00:05:12] Douglas A. McIntyre: And if open AI isn’t at the very top of that list, this valuation is going to look. Super rich to people. And again, I think there’s going to be egg on Microsoft’s face. So look, if, um, if I’m looking at this stock right now, I don’t view this as a goodbye, I just don’t view it as a. It’s not, there’s no strong case to be made that Microsoft is an elite tech stock right now.

[00:05:46] Lee Jackson: No, not really. And that’s a, that’s a real, real shift from how things were just as little as a year ago when they were just, you know, rolling. And yeah, things have kind of come to a standstill and it’ll be interesting to see how third quarter numbers are.

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