Microsoft (MSFT) and Artificial Intelligence

"AI is one of the most transformative technologies of our time and has the potential to help solve many of our world’s most pressing challenges."

- Satya Nadella, CEO of Microsoft

Artificial Intelligence (AI) is fast becoming an integral part of Microsoft’s (MSFT) ecosystem. The company’s commitment to AI is reflected in its investment and acquisition decisions, its patent profile, and its product & platform launches.

For Microsoft, AI is the way forward, and here’s how it’s working on developing the technology as part of its future.

Artificial intelligence is broadly defined as “the activity devoted to making machines intelligent, and intelligence is the quality that enables an entity to function appropriately and with foresight in its environment.”

Where AI is today

AI is one of the most promising advanced technologies today with huge scope across industries. The AI market is projected to reach $190.6 billion by 2025, at a CAGR of 36.6% during 2018-2025.

Augmented intelligence, which is a combination of human and AI capabilities, is estimated to create $2.9 trillion of business value and 6.2 billion hours of worker productivity globally in 2021.

Gartner defines augmented intelligence, “as a human-centered partnership model of people and AI working together to enhance cognitive performance. This includes learning, decision making and new experiences.”

A PwC report highlights that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion is likely to come from consumption-side effects.

Overall, AI offers businesses and organizations the opportunity to achieve “formerly impossible efficiencies and innovations by delivering value that once required too many people or too much time.” This is driving more and more organizations to adopt AI; while 14% are already doing so, nearly 50% intend to do so in 2020 as per a CIO survey.

How Microsoft wants to tap into AI

Microsoft has been making several strategic acquisitions and investments to accelerate the pace of AI development, especially in the last year.

In May 2018, Microsoft acquired Semantic Machines, a company that has developed a revolutionary new approach to building conversational AI that can deliver powerful, natural and more productive user experiences.

In a move to build ‘brains’ for autonomous systems, Bonsai was acquired in June 2018. Bonsai has a novel approach that can specify and train autonomous systems to accomplish tasks. By 2025, over 800 million autonomous systems are projected to be operation, and by then, Bonsai’s capabilities could have huge ramifications.

This was followed by the acquisition of Lobe, a company working to make deep learning simple, understandable and accessible to everyone. And finally, worth mentioning, in November, Microsoft entered an agreement to acquire XOXCO, a software product design and development studio known for its conversational AI and bot development capabilities.

Microsoft is infusing intelligence across all its products and services to enhance the productive capabilities of individuals’ and organizations. This year, the company introduced Dynamics 365 AI, a new class of AI applications built for an era where systems of record are converted into systems of engagement and intelligence.

AI is present across Microsoft 365 to enable new automation, prediction, translation and insights. By leveraging the expertise of Sematic Machines, Microsoft unveiled the next leap in natural language interface technology that would be incorporated in all of its conversational AI products and tools, including Cortana.

Microsoft continues to collaborate with the automotive industry at every point in the supply chain and enhance capabilities of its connected vehicle platform. The connected car market is projected to reach $225.15 billion by 2025, registering a CAGR of 17.1% from 2018 to 2025.

Beyond cars, Microsoft AI is being used for varied uses across organizations and sectors - such as the National Health Services (healthcare), British Petroleum (Energy), TechMahindra (Professional Services) in India, and many more. Microsoft is also applying AI to solve pressing issues such related to environment, like the climate change.

AI is critical for further empowering Microsoft’s cloud computing arm Azure that is experiencing fast paced growth and is an important segment of its overall business. Azure is trusted by more than 95% of the Fortune 500 for their mission-critical workloads.

According to Canalys Cloud Channels Analysis, Microsoft had the second highest market share at 16.8% during 2018, up from 13.5% in 2017. While during Q2 2019, Microsoft Azure increased its market share to 18.1%, up by 2.9 percentage points vis-à-vis same quarter last year.

In July 2019, Microsoft committed to a $1billion investment in a multiyear agreement in OpenAI to boost its efforts towards building artificial general intelligence (AGI). OpenAI and Microsoft will jointly develop new Azure AI supercomputing technologies. OpenAI will port its services to run on Microsoft Azure, and it will become OpenAI’s preferred partner for commercializing new AI technologies. The worldwide public cloud services market is estimated to $214.3 billion in 2019 and reach $331.2 billion by 2022.

Microsoft is among the top research and development spenders globally; its R&D spending was $14.72 billion during 2018 respectively—accounting to 13% of its revenue. The company is documenting its research efforts by way of patents. According to a report by World Intellectual property Organization (WIPO), Microsoft has the second largest portfolio of AI patent applications with 5,930 inventions.

Overall, Microsoft is leading in the field of AI research achieving human parity with object recognition, speech recognition, machine reading and language translation.

Satya Nadella aptly summarized Microsoft’s AI vision: “The quintessential characteristic for any application being built in 2019 and beyond will be AI.”

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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