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Still Time to Invest in ‘the Most Transformative CEO in History’

April 26, 2023

Readers of Quentinvest and many others are becoming all too aware of the power and significance of the AI revolution. In its latest incarnation AI is being described as generative AI and the potential to transform the world we live in looks incredible.

Here is what Bill Gates, the founder of Microsoft had to say about AI recently.

In my lifetime, I’ve seen two demonstrations of technology that struck me as revolutionary.

The first time was in 1980, when I was introduced to a graphical user interface—the forerunner of every modern operating system, including Windows. I sat with the person who had shown me the demo, a brilliant programmer named Charles Simonyi, and we immediately started brainstorming about all the things we could do with such a user-friendly approach to computing. Charles eventually joined Microsoft, Windows became the backbone of Microsoft, and the thinking we did after that demo helped set the company’s agenda for the next 15 years.

The second big surprise came just last year. I’d been meeting with the team from OpenAI since 2016 and was impressed by their steady progress. In mid-2022, I was so excited about their work that I gave them a challenge: train an artificial intelligence to pass an Advanced Placement biology exam. Make it capable of answering questions that it hasn’t been specifically trained for. (I picked AP Bio because the test is more than a simple regurgitation of scientific facts—it asks you to think critically about biology.) If you can do that, I said, then you’ll have made a true breakthrough.

I thought the challenge would keep them busy for two or three years. They finished it in just a few months.

In September, when I met with them again, I watched in awe as they asked GPT, their AI model, 60 multiple-choice questions from the AP Bio exam—and it got 59 of them right. Then it wrote outstanding answers to six open-ended questions from the exam. We had an outside expert score the test, and GPT got a 5—the highest possible score, and the equivalent to getting an A or A+in a college-level biology course.

Once it had aced the test, we asked it a non-scientific question: “What do you say to a father with a sick child?” It wrote a thoughtful answer that was probably better than most of us in the room would have given. The whole experience was stunning.

I knew I had just seen the most important advance in technology since the graphical user interface.

Bill Gates, World Economic Forum, 28 March 2023

There are going to be many stocks that benefit from this explosion in technology that we are about to live through and one, which has already featured in Quentinvest, is looking more exciting than ever.

Just in general I see AI as presenting one of the great investment opportunities of the century and we are at the dawn of the age of AI. It is a mouth watering prospect and one on which we will be focusing in Quentinvest. Watch this space!

Microsoft Q3 2023 earnings blow forecasts out of the window

Microsoft has just reported earnings for its third quarter of the year to 30 Jun 2023 and they were sensational led by its explosively growing cloud business.

The Microsoft Cloud delivered over $28bn in quarterly revenue, up 22pc and 25pc in constant currency, demonstrating our continued leadership across the tech stack. We continue to focus on three priorities. First, helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend. Second, investing to lead in the new AI wave across our solution areas and expanding our TAM. And third, driving operating leverage, aligning our cost structure with our revenue growth.

Q3 2023, 25 April 2023

Looking at these results one analyst has posed the question.

Seeking Alpha analyst Tradevestor called Microsoft’s (MSFT) results a “monstrous quarter by almost all means” and added CEO Nadella “may go down as the most transformative CEO in history.”

Seeking Alpha, 25 April 2023\

Satya Nadella – the ultimate super geek

It is not an unreasonable idea. Satya Nadella, who is a wonderfully geeky looking guy and still only 55 years old, became CEO of Microsoft on 4 February 2014. Since then the shares have climbed from nearly $35 to nearly $300. Under his watch the value of the company has increased by just shy of $2 trillion which is more than the value of all but two of the world’s businesses, Microsoft itself and Apple.

It is no coincidence that before becoming CEO of Microsoft, and what an inspired choice that was, he was the boss of the fast-growing cloud business that has become so important to the group’s progress.

Now Nadella is vocal in lauding the potential of AI and walking the talk with Microsoft being a significant investor in OpenAI, the company, which developed ChatGPT.

It is obvious that Microsoft is going to invest heavily in AI and maybe lead the world in the revolution that is coming.

I am reading the Q3 report to analysts by Microsoft and it is amazing how much is going on and so much of it related to AI. It is incredible that such a large company can be so exciting.

Just one quote among many.

As we look towards a future where chat becomes a new way for people to seek information, consumers have real choice in business model and modalities with Azure-powered chat entry points across Bing, Edge, Windows and OpenAI’s ChatGPT. We look forward to continuing this journey in what is a generational shift in the largest software category, search.

Q3 2023, 25 April 2023

And it really does look as though these guys are just getting revved up.

Microsoft just getting revved up

In closing, we are focused on continuing to raise the bar on our operational excellence and performance as we innovate to help our customers maximize the value of their existing technology investments and thrive in the new era of AI. In a few weeks times, we’ll hold our Build conference, and we will share how we are building the most powerful AI platform for developers and I encourage you to tune in. I could not be more energized about the opportunities ahead.

Q3 2023, 25 April 2023

The chart shows a consolidation, amazingly only the second one on a chart of this scale (each candlestick equals a year) since Microsoft IPO in 1986, so not a million miles from 40 years ago. Technology shares were smashed in the 2022 sell-off, which I increasingly see as a sharp correction rather than a bona fide bear market.

The shares are down from a peak around $350. It make take some doing to break through that old peak but when it happens, and I am increasingly convinced that it will, we could be looking at another dramatic advance by the shares.

At this moment that all seems unlikely. Microsoft valued at $3 trillion, $5 trillion, $10 trillion may sound like a pipedream but a few years ago a value of $1 trillion would have seemed unthinkable. In this new age of AI who knows what might be coming, many strange wonders, that’s for sure.

Strategy

I never try and call short term movements in share prices. $300 is a round number resistance and Microsoft has jumped sharply so maybe there will be some profit taking or maybe there won’t. Don’t ask me guv, cos I don’t know. What I do think is that the company has an incredible CEO, the fundamentals look amazing, AI seems to be everything that Bill Gates thinks it is and the chart looks positive. Buy now seems like a good strategy to me. Leave the fine tuning to the other guys.

Share recommendations

Microsoft MSFT. Buy @ $296

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