Why Microsoft's Split With OpenAI May Be Great for the Stock in the Long Run

Microsoft (NASDAQ: MSFT) and OpenAI aren't as close and intertwined as they were a year ago. While they still work together, both have been distancing themselves from one another and have updated their partnership agreement multiple times.

While partnering and working closely with OpenAI may have seemed like a great move for Microsoft when ChatGPT was the leading chatbot, times have changed. Here's why diversifying and being less dependent on ChatGPT may prove to be a great strategy for the tech giant in the long run.

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Microsoft's customers frequently use multiple AI models

There are a growing number of AI chatbots, and picking a winner at this stage is no easy task. That's why taking a more agnostic approach and not being linked to a specific model may be crucial for Microsoft. Anthropic's Claude model, for instance, is known for being a popular option with enterprise customers for its coding capabilities. By simply offering customers the ability to choose the AI model that best suits their needs, Microsoft doesn't need to worry about picking a winner, which can enable it to better meet its customers' needs.

Microsoft's cloud servers allow customers to choose from many different AI models, including ones from OpenAI, Anthropic, and open source. CEO Satya Nadella stated, on the company's recent earnings call, that "over 10,000 customers have used more than one model on Foundry, 5,000 have used open-source models, and the number who have used Anthropic and OpenAI models increased 2x quarter-over-quarter."

Offering flexibility is key for Microsoft to be adaptable and ensure it's not limiting itself to a specific AI model. Nadella also says that "we offer the broadest selection of models of any hyperscaler, so customers can choose the right model for the right workload."

Could Microsoft's stock be a steal of a deal?

This year, shares of Microsoft have fallen by 13% as there's been plenty of bearishness around software stocks as a whole. But Microsoft is far safer than the whole, as AI has improved many of its products and services, with its Copilot assistant helping people with common everyday tasks within its popular software titles, including Word and Excel. AI isn't likely to destroy Microsoft but instead allow it to offer its users more value in the long run.

At 25 times trailing earnings, the tech stock trades at a very reasonable premium, and it's cheap when compared to the S&P 500, with the average stock on the index trading at a multiple of 26. For long-term investors, Microsoft can make for an excellent stock to buy right now, as being less dependent and reliant on OpenAI should put it in a better position to grow its AI business.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.