For many tech companies, investors are applying a new valuation method that has caught our eye: AI proficiency.
The current wave of AI hype has two main flavors that I’m interested in. First, the struggle between tech titans to create, or at least invest in and support, the latest and greatest in intelligent computing services. And the second, the startups levering the improving tool set to build and improve products, helping them grow quickly and attack new markets.
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Mostly here at TechCrunch, we’ve focused on the startup side of things. Given our remit as a publication — we focus on startups and their backers — that’s not surprising. But the story of Copy.ai, one of the earlier startups to leverage tools like GPT-3, reaching $10 million in annual recurring revenue is hardly the entire picture.
As the recent release of GPT-4 shows, the pace of technological advancement in AI technology (mostly in the form of large language models, or LLMs) is incredibly quick at the moment. For startups building atop the technology, that’s great news; they will likely be able to do more, and more quickly, with technologies from OpenAI and its competitors, in the future. For tech’s largest companies, however, the situation is slightly different.
Recall that Microsoft extended its investments into OpenAI, makers of ChatGPT and other popular AI tools, earlier this year. The latest bear hug from Redmond comes after OpenAI picked up $1 billion from Microsoft back in 2019.
The fruits of the corporate pairing are showing up all over Microsoft’s software empire. Bing is using OpenAI tech. So is Microsoft’s CRM. And so, too, is the Office suite. Everywhere you look around Microsoft’s corporate and consumer products, AI is increasingly prominent. It’s probably too early to tell how successful Microsoft’s efforts will be in aggregate — Office users can be a bit stuck in their ways, rebelling against UI changes, let alone something as large as Copilot — but early indications are positive.
Bing, a perennial also-ran in search, was competent enough before it was gifted new AI capabilities. Since it got an OpenAI-powered makeover, usage has taken off. It had a waitlist, for example, of users wanting to try its new tools. That Microsoft was using GPT-4 under the radar in Bing before it came out only added to its newly earned mystique.
Given that major tech companies have their hands in a great many markets, it’s hard to say that their share-price performance over any period of time was driven by any single factor. But Microsoft, Google and Baidu, each with a hand in the current AI race, for example, are all up double-digit percentage points thus far in 2023.
We have also seen investors lash out at tech giants when their AI technologies failed to excite the market. Google infamously took stick when its AI tools served up an incorrect answer. And shares of Baidu were initially punished last week after its AI rollout was met with something akin to indifference; later, more positive reviews helped reflate the Chinese company’s value.
Regardless of whether you think AI tech is good enough for daily use, it’s coming to a word processing tool or search engine near you. Google is bringing AI services into its G Suite productivity software collection, it recently announced, to raise another example.
Investors are keeping a close eye on AI tech from big technology conglomerates because — and here I am putting my own read into this story — they think that it matters for long-term competitiveness. The implications of that have kept me thinking all weekend:
- Investor expectations for rapid advancement in AI tech and quick implementation into existing services should help keep the pace of innovation quick. This means that, a year from now, we should expect to see many tools surpass the gains in function that GPT-4 recently ushered in.
- Branding matters. Microsoft is currently enjoying a press boomlet over its AI work, while its rivals seem to be playing catchup. Google and Baidu, among others, won’t want to play second-fiddle, meaning more investment, underscoring our prior point.
- For startups, this is probably good news. Sure, some Big Tech AI services will eat into particular startup niches. But for startups that are able to speedily leverage better and better AI tech, they will be able to improve their products — presumably — quickly, boosting value offered and thus ROI. Hell, they might even find a little pricing leverage.
The recent AI rush may feel familiar. After all, we’ve kinda been here before. The difference this time is better tech, faster. That should also feel familiar, but in a far more bullish way.
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