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GenAI Challenges and Near-Term Price Deterioration
Microsoft (NASDAQ:MSFT) is one of the most impactful global businesses of our time. Despite its solid fundamentals and a promising future in Cloud and Commercial Software, the market may have overestimated the near-term growth potential of Microsoft’s GenAI initiatives. Challenges in implementing GenAI could lead to a negative impact on the company’s stock price in the short term, creating a potential opportunity for long-term investors.
Impact of GenAI on MSFT’s Growth Trajectory
The recent outperformance of Microsoft stock has been attributed to its focus on Generative AI (GenAI). However, recent events, including New York Times’ lawsuit against OpenAI and Microsoft, shed light on the challenges facing GenAI initiatives. These challenges underscore the importance of incorporating niche data in GenAI development and the potential hurdles in accessing such data, which could impact the growth trajectory of Microsoft.
The Role of Data in GenAI Development
Developing Large Language Models (LLMs) such as GPT models and Google’s Bard hinges on extensive and varied datasets. The convergence of models trained on similar data sets highlights the need for niche data as a key differentiator in the future. However, accessing this niche data has become a challenge for LLM developers, including those backed by Microsoft, as evidenced by current legal disputes.
Comparison of various LLMs (source)
Financial Implications for Tech Companies
The ongoing challenges in accessing niche data for GenAI development have financial implications for tech companies, including Microsoft. The outcome of these challenges could impact the monetization potential of GenAI, prompting a revaluation of tech companies counting on GenAI.