BIG TECH

AI Helped Make Microsoft the World’s Most Valuable Stock. Staying There Relies On a $30/Month Subscription.

Microsoft (NASDAQ:MSFT) has a message for the market: we are so back. Over the last year, the tech giant overtook Apple (NASDAQ:AAPL) as the world’s most valuable company — fueled by a $10B investment in OpenAI and breakneck growth in its Cloud business.

After talking the talk, analysts will want to see it walk run — and CEO Satya Nadella hopes that the key to scaling AI could be its AI companion, Copilot. The product plugs OpenAI’s GPT-4 into popular Microsoft products like Windows, Word, and Teams — and can write emails, organize information, and summarize meetings.

Not ready for takeoff: Despite supposedly strong demand for Copilot, Microsoft is struggling to convince AI-skeptical companies to shell out for its new and unproven AI companion, which RBC Capital analyst Rishi Jaluria says “has to be a success” for Microsoft’s recent stock boom to stand up (WSJ).

• While Microsoft claims it saves the average user 1.2 hours per week, Copilot is still in testing — and frequently makes errors in apps like Excel and PowerPoint.

• Companies have reportedly pushed back against its required minimum of “300 subscriptions” and $30/mo per user price.

AI-infused products are becoming the standard

Although analysts previously projected Copilot to contribute an extra $10B in annual revenue for Microsoft, nearly 5% of its total in 2023, competition is heating up — and it’s uncertain whether businesses can justify paying an AI tax to access AI features across hundreds of different software subscriptions.

• Last week, Google announced.) its Google One Premium AI Plan, a $20/mo subscription with 2TB of storage, access to its new Gemini Ultra model, and Gmail, Drive, and hardware device compatibility.

• Yesterday, Nvidia announced a free Chat with RTX desktop app, enabling users to interact with AI models to find information in files on their computers.

Worth the price? As more players enter the AI market, businesses and analysts may be overestimating the immediate benefits of AI compared to what it could do for them in 20 years. Copilot’s $30/mo subscription price might alienate it from the cheaper competition, which could leave Microsoft with no choice but to either pack more value into the product or drop the price.

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LARGECAP RECAP

🎈 The good, bad, worse, and great news with inflation

With inflation, it feels like we’re in a never-ending cycle of good and bad news. On a positive note, America’s star measure of inflation, the consumer price index (CPI), fell to an annual rate of 3.1% in January — its lowest point since November. The not-so-good news is that monthly inflation accelerated, rising 0.3% in January, higher than the expected 0.2%, giving bulls reason to worry. The worst news (depending on which side of the trade you’re on) is that this could delay the first interest rate cut.

• Once again, the blame falls on high shelter costs (+0.6% in January) — making up a significant portion of the increase, with food prices climbing 0.4% for the month.

• That sent the tech-heavy Nasdaq-100 falling 1.55% and the S&P 500 below 5K.

Here’s some great news: While inflation remains stubborn, American wage saw their fastest growth in 50 years, as  the Bureau of Labor Statistics reported. After accounting for inflation, the average American earns 3.4% more than in Feb. 2020.

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Markets & Economy

Carl Icahn boosts JetBlue (NASDAQ:JBLU): The activist investor reported a 10% stake in the struggling airline. Despite a blocked merger with Spirit and struggles with profitability, Icahn says JetBlue is undervalued — and now he might angle for board representation. [Read]

Paramount (NASDAQ:PARA) lays off 3.6% of workforce: The entertainment giant is in turmoil amid a potential sale, and now CEO Bob Bakish is “streamlining costs” as the company vies to return to earnings growth and keep pace with high-tech rivals like Netflix. [Read]

Senate passes $95B aid package to Ukraine and Israel: It’ll face pushback in the House, where Republicans are upset about the bill’s lack of border provisions, though Democrat Chuck Schumer seems confident it will pass. How the bill adds to the mounting national debt remains a sticking point. [Read]

Business & Wealth

Super Bowl 58 was a ratings monster: It marked the most-watched televised event ever, topping SB 57 by 13% (the previous most-watched telecast ever). Overall, the state of football is strong, with CBS Sports seeing its best postseason viewership since 1998. [Read]

Rideshare, delivery drivers striking today: Thousands of ****drivers for Uber, Lyft, and DoorDash from the US and UK will be off the roads for a few hours as they demand higher compensation for the work they put in each day. [Read]

Tiger Woods and TaylorMade team up for sports apparel deal: They’ll work together on a new sports brand called “Sun Day Red” (a nod to Woods’ tendency to wear red on Sundays) — which has big shoes to fill following his lucrative 27-year partnership with Nike. [Read]

DIGIT OF THE DAY

Risk-Loving Investors Plow $6.2B Into Biotech Companies In The Latest Sign of a Biotech Turnaround

After years of struggling, biotech companies are back and ready to innovate. Their stocks are trading at the highest levels since 2022 — attracting funding at a rate we haven't seen since the pandemic frenzy. Rebounding stock prices, a rise in mergers and acquisitions, and a surge in biotech IPOs have breathed new life into the sector.

• The iShares Biotechnology ETF (NASDAQ:IBB) is up ~18% from its October low, while biotech IPOs like ArriVent Biopharma (NASDAQ:AVBP) and CG Oncology (NASDAQ:CGON) have jumped 22% and 36% since their debut.

• As stock prices climb, drug developers are taking advantage by selling shares and raising funds. In January alone, they collected $6.2B in new equity, with most contributions coming from existing publicly traded companies.

What’s causing the boom? CRISPR and cancer therapies have ignited a surge in biotech innovation — while looming patent expirations have prompted large pharma to seek acquisitions in search of their next blockbuster drug. Still, experts like portfolio managers Andy Acker and Daniel Lyons believe a “return to the heady days of the pandemic,” when biotech stocks thrived regardless of company fundamentals, isn’t in the cards.