Microsoft (MSFT) -) may have scored its biggest win yet in the battle for AI dominance.
How's that? By snapping-up OpenAI founder Sam Altman and preventing him from joining the mega-tech rivals eager to close the gap in the $1 trillion artificial intelligence market.
Altman, 38, will head a new AI research team at Microsoft following his ouster from OpenAI late Friday amid still-unknown circumstances that could yet bring the ChatGPT creator, last valued at $86 billion, crashing to its knees.
Related: OpenAI descends into chaos as nearly 500 staff threaten to leave unless board resigns
Microsoft, meanwhile, has scored by hiring the OpenAI founder, widely considered the sharpest mind in the global AI industry, as well as his associate Greg Brockman, in a weekend coup that cost the tech giant nothing, but prevented the duo from taking their talents to a mega-tech rival such as Google (GOOG) -), Apple (AAPL) -), or Meta Platforms (META) -).
Deepwater Asset Management analyst Gene Munster described Microsoft's win as a "coup out of OpenAI's board coup" and "the biggest jump ball for paradigm-shifting tech talent" he has seen.
"This is a great example of the power of 1-in-a-billion founder (we call them 'alien founders' at Deepwater)," Munster said on the X social media platform. "These founders are the soul of the company and have more power than the boards."
Microsoft is also first in line to nab the likely exodus of talent from San Francisco-based OpenAI over the coming weeks, as nearly 500 staff have signed a letter threatening to leave the group unless the current four-person board resigns.
“The process through which you terminated Sam Altman and removed Greg Brockman from the board has jeopardized all of this work and undermined our mission and company," the letter stated. “Your conduct has made it clear you did not have the competence to oversee OpenAI.”
That collective could transform Microsoft's AI ambitions, which it super-charged earlier this year through a $10 billion investment in OpenAI (adding to an earlier $3 billion injection) as it looked to revive its moribund Bing search engine by enhancing it with ChatGPT.
Since then, ChatGPT recorded around 23 million downloads over the first nine months of this year, according to a report from The Information, and was on pace to generate around $1 billion in revenues, compared to around $28 million over the whole of 2022.
Microsoft's stake, meanwhile, is worth at least four times its original value, at least prior to Friday's boardroom drama, and it continues to hold a 49% equity stake in OpenAI.
Microsoft CEO Satya Nadella, who lobbied for Altman's return to the helm of OpenAI in the chaotic aftermath of his ousting late Friday, said the tech giant would continue working closely with the ChatGPT creator and new CEO Emmett Shear, but there may be little incentive to do so if staff were to depart San Francisco for Redmond, Washington, and kick-start its in-house AI effort.
Related: Microsoft nabs Sam Altman to lead AI effort following OpenAI boardroom 'train wreck'
"Microsoft hired the key asset and now he will oversee OpenAI from Redmond along with Nadella, which is the music to the ears of investors," said Wedbush analyst Dan Ives, who carries an 'outperform' rating with a $425 price target on Microsoft.
"If Microsoft lost Altman he could have gone to Amazon, Google, Apple, or a host of other tech companies craving to get the face of AI globally in their doors," he added. "Instead he is safely in Microsoft's HQ now leading the company key AI efforts which we expect many key scientists and developers to leave OpenAI and head directly to Microsoft."
Microsoft has touted the potential of ChatGPT, a tool that uses human language to process instructions, to close the gap on market leader Google, the eponymous lead product of parent company Alphabet.
Investors are betting that AI adoption will help Microsoft — which generated just $3.2 billion in search revenue last year — challenge the market dominance of Google, which churned around $43 billion.
In a further demonstration of its AI ambitions, Microsoft said last week that it will start producing its own central processing units in an effort to diversify its dependence from AI chip leader Nvidia (NVDA) -). The move is seen as likely to improve long-term profit margins as the software giant seeks to make it easier to build GPT and AI functionality into its product base.
"While the turnover in OpenAI leadership to us suggests risk around OpenAI's prospects and pace of innovation and around the Microsoft/OpenAI relationship, those concerns regarding Microsoft are somewhat offset by the announced move of Altman and Brockman to Microsoft," said KeyBanc Capital Markets analyst Michael Turits.
"We continue to view Microsoft as being one of the dominant beneficiaries of Generative AI both at the infrastructure level, where the company recently reported >3% of Azure's first quarter revenue being driven by AI, and across its consumer and enterprise applications with its expansive Co-pilot offerings," he added.
Microsoft shares were last marked 1.83% higher in mid-day Monday trading and changing hands at $376.46 each, extending their 2023 gain to around 57% and valuing the world's second-largest tech company at around $2.8 trillion. The stock hit an all-time high of $377.10 earlier in the session.
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