Why MSFT all time high again? Would Llama be another boost?

$Microsoft(MSFT)$ has hit another all-time high.

During the Inspire 2023 conference on July 18th, they unveiled their AI tool for Office, called 365 Copilot, priced at $30 per user per month.

Additionally, Microsoft announced a partnership with $Meta Platforms, Inc.(META)$ to release the commercial version of the open-source AI model, Llama, changing Meta's previous approach of providing it solely to designated scholars for research purposes. While

Microsoft's stock price rose over 6% during trading, Meta saw a more modest increase of 1%.

Q1: Is the pricing of Office 365 Copilot high?

Microsoft is not offering this tool to all Office users; the $30 Copilot add-on is only applicable to E3, E5, Business Standard, and Business Premium customers who are the primary subscribers of Office SaaS, paying between $12.5 and $57.0 monthly.

How significant is the impact on users? For example, E3 users currently paying $36 per month would face a 63% increase, totaling $63 per month after adding Copilot.

This rise in price could be substantial for individual users, especially independent workers. However, from a company perspective, the marginal increase is not too high, making it more feasible for enterprise-level subscriptions with strong demand.

Q2: How does this benefit Microsoft's performance?

This move will significantly enhance Microsoft's pricing power in the business domain, and in the next few years, the penetration of its AI on existing software products will be substantial.

According to Nadella's expectations, over 50% of Microsoft's existing user base will eventually adopt this AI product within the next 3 years, potentially boosting cloud business growth by 20 percentage points before 2025.

On the other hand, the initial high pricing might be accompanied by higher operating costs, including cloud infrastructure expenses. However, as the number of subscribers grows, marginal effects will contribute to increased profit margins.

Q3: Why is Microsoft collaborating with Meta?

While Meta has not been well-received by some in the corporate world, and Zuckerberg may have some detractors, Meta is a company with high-quality assets and has been actively involved in AI competitions for a long time. In comparison, Microsoft is relatively more friendly towards Meta among big techs.

Therefore, it is foreseeable that Microsoft will support Meta's Llama 2 series of large language models on Azure.

• Microsoft currently holds the largest commercially developed closed-source language model, but they are also open to collaborating with Meta to consolidate their ChatGPT's advantages.

• This collaboration will intensify competition among startups and other companies in the LLM field.

• Additionally, Windows, including the Llama 2 model, will promote Windows as the best platform for developers to build AI experiences tailored to customer needs, increasing its market share (especially in competition with Apple).

Many industry experts share their views, stating that

• closed-source models, aside from a few leading players, cannot establish barriers, and open-source ecosystems tend to eat into the market in a more user-friendly way.

• Similar situations occurred ten years ago when excellent closed-source frameworks like Baidu and Google's proprietary frameworks were defeated by rough open-source frameworks developed by students. In each of these competitions, we witnessed major corporations hesitating, eventually being disrupted by small startups or even schools.

• For startups, new opportunities will always emerge in the gold rush, just like new opportunities arise for shovel and cowboy boot manufacturers.

Q4: Which companies can directly use the Llama 2 model?

Companies with Monthly Active Users (MAU) not exceeding 700 million can utilize it. Currently, products with over 700 million MAUs include (but are not limited to):

YouTube ( $Alphabet(GOOG)$ ) with 2.5 billion, $Apple(AAPL)$ with 1.8 billion, Microsoft with 1.4 billion, WeChat ( $Tencent(00700)$ ) with 1.3 billion, $Samsung Electronics Co., Ltd.(SSNLF)$ with 1 billion, TikTok with 1 billion, LinkedIn with 900 million, and $Snap Inc(SNAP)$ with 750 million.

Q5: How does Llama 2 differ from ChatGPT, and to what extent can it match ChatGPT?

Llama 2 is possibly the best open-source AI model currently available, closely resembling ChatGPT. It might even be the first open-source model to outperform GPT3.5, with data volume growing from trillions to tens of trillions. Please refer to the visual comparison below