If the market expects transformative AI in 12 months, but only because it will be developed by OpenAI – a company which is not traded publicly – then this will not show up in any equity index.
Microsoft is planning to invest $10B in OpenAI and rumors are that their maximum revenue is $105B.[1]
Microsoft is currently trading at a revenue multiple of ~10x, so this would increase their valuation by $1T, or about 60%.
I think this is enough to show up in Microsoft’s stock price. It will be interesting to see what happens to the stock if/​when the OpenAI deal closes. My guess is that there will be a small bump, but nowhere near 60%.
Revenue is capped because of the weird term structure. But note that this doesn’t include things like increased revenue Microsoft would get from using GPT for Bing, which could be much higher
Thanks for this interesting exercise. The one caveat I’d note is that the multiplier you use is based on annual revenue—if the remittances from OpenAI to MSFT occur over a number of years, we would need to divide the $1T number that you calculate by that number of years.
Microsoft has now officially announced their investment and their stock is up ~1% but that’s within normal daily variance. Probably the deal was considered likely enough to go through that a lot of the assumed benefit from this deal was already priced in before the official announcement, but I think it’s pretty hard to look at a graph of Microsoft stock price and claim that the market is pricing in substantial benefits in the next year.[1]
fwiw, I’m considering this a market inefficiency and purchasing Microsoft stock as my only non-index fund holding. Feel free to check in with me next year and see how much I regret this.
Microsoft is planning to invest $10B in OpenAI and rumors are that their maximum revenue is $105B.[1]
Microsoft is currently trading at a revenue multiple of ~10x, so this would increase their valuation by $1T, or about 60%.
I think this is enough to show up in Microsoft’s stock price. It will be interesting to see what happens to the stock if/​when the OpenAI deal closes. My guess is that there will be a small bump, but nowhere near 60%.
Revenue is capped because of the weird term structure. But note that this doesn’t include things like increased revenue Microsoft would get from using GPT for Bing, which could be much higher
Thanks for this interesting exercise. The one caveat I’d note is that the multiplier you use is based on annual revenue—if the remittances from OpenAI to MSFT occur over a number of years, we would need to divide the $1T number that you calculate by that number of years.
(PS: amazing tiktoks)
Microsoft has now officially announced their investment and their stock is up ~1% but that’s within normal daily variance. Probably the deal was considered likely enough to go through that a lot of the assumed benefit from this deal was already priced in before the official announcement, but I think it’s pretty hard to look at a graph of Microsoft stock price and claim that the market is pricing in substantial benefits in the next year.[1]
PS: thanks :)
fwiw, I’m considering this a market inefficiency and purchasing Microsoft stock as my only non-index fund holding. Feel free to check in with me next year and see how much I regret this.