At its recent developer conference, Microsoft showcased its commitment to AI-powered software. However, it is the company’s hardware ambitions that have the potential to disrupt the artificial intelligence market.

One of the standout highlights for Microsoft (ticker: MSFT) at the Ignite conference was the introduction of 365 Copilot, an AI-based companion for its productivity software. Analysts are particularly optimistic about this development, with Wedbush’s Daniel Ives referring to it as a “game-changing” moment for AI monetization. According to Ives, Microsoft’s partnerships and customer interest in Co-Pilot could contribute an impressive $20 billion in revenue to Redmond by 2025.

In light of this positive reception, Ives has raised his target price on Microsoft stock to $425 from $400, maintaining an Outperform rating. As a result, Microsoft shares experienced a 1.4% increase, reaching $374.90 during early trading on Thursday.

Another significant announcement at the conference involved Microsoft’s foray into the in-house chip market with Azure Maia AI Accelerator. This chip is equipped to handle various tasks such as large-language model training and inference, which involves generating answers from AI models. Consequently, Microsoft and its AI partner OpenAI now have an alternative to Nvidia (NVDA) chips. The Maia chip’s design was a collaborative effort between Microsoft and OpenAI, further solidifying their partnership in the AI realm.

Microsoft to Develop its Own AI Chips

Microsoft has revealed plans to develop its own artificial intelligence (AI) chips, a move that could strengthen its position in the market. While the company still plans to offer its cloud customers chips from Nvidia and Advanced Micro Devices (AMD), having its own AI chips will give Microsoft more leverage.

Microsoft is not alone in this endeavor, as both Google-parent Alphabet and Amazon also have their own in-house AI chips. This trend points to a shift in the industry, with companies looking to have more control over their AI capabilities.

In addition to AI chips, Microsoft has also announced a new data-center computer processor named Azure Cobalt. Based on a licensed design from chip designer Arm Holdings, this puts Microsoft in direct competition with Intel.

Industry experts predict that this trend of companies developing their own AI chips will continue. This could pose a challenge for established players like Intel, AMD, and Nvidia, as Arm enables hyperscalers to create powerful options for their customers.

As a result of this news, Nvidia shares remained flat in early morning trading, while AMD stock saw a slight increase. On the other hand, Intel stock experienced a significant 3.1% jump following an upgrade from Mizuho Securities.

Conclusion

With the decision to develop its own AI chips, Microsoft is aiming to enhance its position in the AI market. This move aligns with the industry trend of companies creating their own chips to have more control and provide better options for their customers. It remains to be seen how this will affect established players like Intel, AMD, and Nvidia moving forward.

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