How high can AI take the cloud giants?

The future convergence of the cloud and AI is expected to propel the market forward, meaning the likes of Salesforce and Adobe are primed for further gains

Bill Gates recently wrote that the development of ChatGPT is on par with the creation of the first microprocessor, the Internet, and the mobile phone. Gates' perspective on the disruptive potential of artificial intelligence (AI) technologies is not uncommon. Numerous respected research bodies and leading entrepreneurs estimate that AI has the capacity to significantly impact the global economy. According to investment bank Goldman Sachs and business consulting company McKinsey, advancements in AI could contribute to a 5-7% increase in global GDP over the next decade, amounting to approximately $4.5-7 trillion.
The rapid emergence of artificial intelligence in our lives over the past year gives the impression that the field has only recently begun to take shape. However, researchers began developing AI software as early as the 1950s, and AI integration in business organizations commenced during the 1990s. In recent years, technology giants such as Microsoft, Google, and Amazon have made substantial investments in AI across various domains. The substantial investment required for advanced computing infrastructure and AI model training presents significant barriers to entry, favoring cash-rich tech giants. For instance, Microsoft's $10 billion investment in OpenAI, the creator of ChatGPT, will likely be directed towards financing cloud computing costs and AI computations.
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מטה סיילספורס Salesforce סן פרנסיסקו
מטה סיילספורס Salesforce סן פרנסיסקו
(Photo: Bloomberg)
Investors are clearly optimistic about the growth potential of AI companies, as evidenced by the significant price increases experienced by the industry since the beginning of the year. Notably, Nvidia, the developer of the graphics processor used by OpenAI, saw its stock surge by 192% since the start of the year.
A notable trend in recent years is the transition of companies and organizations to cloud-based platforms for their work environment. This shift towards advanced computing infrastructure opens up a realm of innovative software applications and services. Anticipated AI-based applications will run on top of the cloud environment, making the cloud transition even more appealing for companies. The future convergence of the cloud and AI is expected to propel the AI cloud market forward. In this new landscape, cloud service providers will have the opportunity to offer AI services as subscriptions. According to research company Statista, the market size of AI-based products is projected to reach $2 trillion by the end of the decade, representing a tenfold increase from the current level of $200 billion.
Two prominent cloud service companies stand to benefit greatly from selling additional services to their large existing subscriber base. The first is American company Salesforce, renowned for its customer relationship management system (CRM). Salesforce recently introduced intriguing AI-based applications, including the notable "Einstein GPT." This tool combines AI capabilities with the extensive CRM database, allowing subscribers to request contact information about companies, draft initial introductory emails, and more. In the realm of customer service, this advanced tool is expected to enable companies to provide more accurate and timely responses to customer inquiries.

Another potential beneficiary is the software giant Adobe, known for its PDF document software and Photoshop image design software. In recent years, Adobe has shifted to a service-based sales model. The company envisions that AI will greatly expand the scope of usage for its design software. As evidence of this, Adobe recently launched an AI plugin for Photoshop that generates images based on textual descriptions provided by users. Initial user reactions have been enthusiastic, resulting in a 41% increase in the company's stock over the past month.
The 19th-century gold rush demonstrated that the greatest beneficiaries were the suppliers of equipment and services to gold seekers. In the modern context, chip companies focused on the AI field are expected to play a similar role by providing the significant computing power required. One such example is chip manufacturing giant Taiwan Semiconductors. Given its dominance in advanced technology production processes, the company is anticipated to experience a sharp increase in revenue from the AI field, particularly through its partnership with chip company Nvidia, which accounted for approximately 6% of Taiwan Semiconductors' revenue in the past year.
The writer is a stock analyst in the investment advisory department at Bank Leumi
First published: 10:00, 20.06.23