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Microsoft and OpenAI's $100 Billion Stargate Project to Revolutionize AI Industry

Microsoft and OpenAI plan a $100 billion Stargate project, aiming to revolutionize AI development and boost Microsoft's stock.

By Bill Bullington

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4/1, 10:31 EDT
Microsoft Corporation
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Key Takeaway

  • Microsoft and OpenAI plan a $100 billion project, Stargate, aiming to revolutionize AI development, highlighting the tech giants' deepening collaboration.
  • Following the announcement, Microsoft's stock rose, with Jefferies raising its price target to $550, reflecting a 48% increase over the past year due to AI sector growth.
  • OpenAI's valuation could reach up to $90 billion, potentially yielding significant profits for Microsoft; analysts remain bullish on its AI and cloud computing prospects.

Microsoft and OpenAI's Ambitious Project

Microsoft and OpenAI are reportedly planning a groundbreaking project named Stargate, a supercomputer that could redefine the landscape of artificial intelligence (AI) development. According to The Information, this venture could see an investment of up to $100 billion, making it significantly more expensive than typical data centers. The financing for Stargate, which aims to power OpenAI's AI work, is expected to come primarily from Microsoft. This collaboration underscores the deepening ties between Microsoft and OpenAI, the latter being a leading figure in AI development and the creator of ChatGPT. The project highlights the increasing demand for substantial computing power and energy to drive advanced AI models.

Stock Market Implications

The partnership and the ambitious Stargate project have stirred the stock market, with Microsoft's shares experiencing notable growth. Analysts have lauded Microsoft as a top AI winner, with Jefferies raising its price target on the stock to $550. Following the news, Microsoft's shares saw an increase, continuing a trend that has seen the stock rise by more than 48% over the past year. This surge is partly attributed to Microsoft's significant stake in OpenAI and its broader exposure to the AI sector, which has been a focal point for investors.

Valuation and Investment Insights

OpenAI's potential valuation of up to $90 billion, as reported, could result in a substantial paper profit for Microsoft, given its 49% ownership and previous investments totaling billions of dollars. This scenario mirrors the tech industry's heightened interest in AI and its financial implications. However, comparisons with Amazon's investment in Rivian serve as a cautionary tale of the volatility and risks associated with high-stakes tech investments. Despite these risks, analysts remain optimistic about Microsoft's prospects, particularly in AI and cloud computing, with Oppenheimer naming it the top large-cap pick for 2024.

Street Views

  • Jefferies (Bullish on Microsoft):

    "Microsoft a top AI winner, with the broker raising its price target on the stock to $550."