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ChatGPT sparks a new race for AI supremacy

Excitement over new breakthroughs in artificial intelligence is building following the initial success of AI-driven chatbot ChatGPT, which is a digitally trained service that can answer complex questions in a conversational way developed by a company named OpenAI. Its ability to answer a wide array of questions with in-depth answers, from asking it to fix code, write a screenplay, explain scientific theories or even give life advice, has made ChatGPT the hottest new tech grabbing the imagination of the markets.

Citigroup has said it is too early to tell the true impact of ChatGPT but said it appears to be a ‘significant breakthrough’ that ‘can lend itself to many applications including search’.

Microsoft invests in OpenAI

Microsoft (MSFT) invested $1 billion in OpenAI back in 2019 but swiftly made a commitment to invest billions more, potentially up to $10 billion, into the company following the huge success and popularity of ChatGPT.

Microsoft is using OpenAI’s products to thrust its Bing search engine into the modern era and improve its web browser. Bing will be powered using OpenAI’s open language model, which is thought to be more advanced than the one running ChatGPT. The new Bing is now available as a preview that allows users to submit a limited number of questions and there is a waitlist to gain full access, with a view of opening it up to millions of people in the coming weeks.

‘This technology is going to reshape pretty much every software category,’ said CEO Satya Nadella.

Alphabet’s Bard has rough start

Alphabet was forced to quickly respond – much sooner than it would have liked – to show off its own AI developments in response to the initial success of ChatGPT. The fact Alphabet has seen over $100 billion wiped off its value since unveiling its own chatbot named Bard, caused by concerns that it is not up to scratch after the service provided inaccurate information in advert, shows how much sway this new era of technology has on investors.

The reason the incident has had such an impact is because Bard has only been introduced to select users before being publicly released in the coming weeks, when it will face its first test as markets weigh up how it stacks up against ChatGPT.

Just days after the gaffe, the vice president of its core Google search engine, Probhakar Raghavan, told German newspaper Welt am Sonntag that AI-driven chatbots have pitfalls. ‘This kind of artificial intelligence we’re talking about right now can sometimes lead to something we call hallucination. This then expresses itself in such a way that a machine provides a convincing but completely made-up answer’.

Microsoft declares war on Google

CEO Satya Nadella has declared war on Google’s (GOOG, GOOGL) monopoly over search and said that Microsoft can win a battle for margins considering it is building up from virtually nothing, which would be a major threat considering Google does not have the same luxury.

That is because Google handles a staggering 93% of worldwide internet searches, while Microsoft’s Bing accounts for just 3%. This shows Microsoft has everything to gain and little to lose.

‘From now on, the [gross margin] of search is going to drop forever,’ Nadella told the Financial Times last week.

Alphabet’s problem is that, at this stage of the race, it has the most to lose while its early rivals have the most to gain. Investors have become fearful that its monopoly over search could be at risk as other major players eye the market and that its technology could be leap-frogged by a competitor. Even if it can maintain its leading position, more intense competition from the likes of Microsoft could weaken Alphabet’s margins.

Microsoft’s Nadella has said he is willing to accept any demonestisation in search if it allows it to gain ground on Alphabet. ‘There is such margin in search, which for us is incremental. For Google, it’s not, they have to defend it all,’ he said.

Still, the onus is on Microsoft to shake things up. Alphabet is the dominant leader and most people have never used another search engine. Changing people’s habits is tricky and Alphabet is the one with the expertise and, more importantly, the data needed to drive AI forward. It may have had a rough start, but investors should remember that is still very early days for what is still a nascent industry and that Alphabet has been investing in AI for at least a decade.

Plus, this is not a two-horse race considering a slew of other companies are working on their own chatbots, including but not limited to Chinese tech outfits Alibaba and Baidu. That leaves scope for another company to take the lead and means the world will not be short on choice over the coming years. That should help the technology progress quickly as all of them try to get ahead of the pack.

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