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Artificial intelligence has the potential for an total addressable market in the tens of billions of dollars, according to Citi. That means there are huge opportunities for players in the space. “The public announcement of OpenAI’s ChatGPT unleashed an AI news frenzy, but is also driving significant innovation, potentially creating new market opportunities and challenging long-held market dominances,” analyst Tyler Radke wrote in a recent note. ChatGPT, which Microsoft uses with its Bing search engine and Edge browser, was launched late last year. The tech giant has invested millions in the company . That has given Microsoft the first-mover advantage and has made it the best positioned to benefit in software, Radke said. He sees multiple ways the company can win in generative AI, including the market share gain potential in search. “We see 2023 as an important year for Microsoft to attract a critical mass of users to its new AI-powered Bing search engine + Edge browser and chip away incremental search ad market share from Google,” he said. MSFT YTD mountain Microsoft’s move up this year The momentum behind ChatGPT may boost Microsoft’s monthly active users in the near term. However, whether it can retain its user base and grow engagement will be crucial to realizing the revenue opportunity with advertising, Radke noted. AI can also drive growth in Microsoft’s cloud-computing division, Azure. Its OpenAI service could add an incremental $0.6 billion in revenue to Azure’s fiscal year 2024 revenue, with a future base case of $1.4 billion annually, Radke wrote. His $282 price target on the stock implies nearly 4% upside from Monday’s close. Microsoft shares are up nearly 13% so far in 2023. Google a ‘fast follower’ Alphabet unveiled its AI competitor, Bard, last week . Investors appeared unimpressed, sending the stock down 7% for the day. Alphabet’s chairman, John Hennessy, said Monday that the announcement was meant to show the company had similar technology, even though it wasn’t product-ready. Radke isn’t dismissing Alphabet’s lateness to the game as a dealbreaker. “We expect Microsoft and its 1st mover advantage to press forward here, but we believe Google as a fast follower has the tools to launch competitive products as we look for Bard functionality to ramp rather quickly,” he said. Given Alphabet’s investments across AI, Radke expects a more robust user experience across search verdicts and products. His price target on Alphabet is $120, suggesting nearly 27% upside from Monday’s close. Shares have gained nearly 7% so far this year. Opportunity in the GPU business AI search may create a $4.5 billion annual opportunity in the graphic processing unit market, Radke said. This will benefit companies like Nvidia , which designs and manufactures GPUs that deliver AI processing capabilities, he said. He has a price target of $210 on Nvidia, which implies 6% downside from Monday’s close. The chipmaker is already up a whopping 55% year to date. — CNBC’s Michael Bloom contributed reporting.
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