Microsoft Corporation (MSFT) Is Building an AI Monster

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When investors think of artificial intelligence stocks, Microsoft Corporation (NASDAQ: MSFT ) isn't usually the first name that comes to mind. Many consumers view, Inc. (NASDAQ: AMZN ) as the leader in at-home AI, due to the success of the company's Echo device, while "Watson" from International Business Machines Corp. (NYSE: IBM ) is arguably the top turn-key artificial intelligence solution for enterprise-level entities.

Microsoft Corporation (MSFT) Is Building an AI Monster

The software giant's recent acquisition of Maluuba speaks volumes about its artificial intelligence ambitions and what it actually wants to "do" with it.

Those investors who believe AI is the future, however, may want to put MSFT stock back on their radar as a way to play the movement.

What's Maluuba?

Maluuba isn't a household name, but within artificial intelligence circles ( and these are VP of AI Research Harry Shum's words ), "Maluuba's vision is to advance toward a more general artificial intelligence by creating literate machines that can think, reason and communicate like humans - a vision exactly in line with ours."

In simpler terms, the AI agent doesn't just serve up a canned response to the most likely question it thinks it's being asked based on keywords. Rather, Maluuba understands the words being used, their context , and what information is desired. The utility of such a tool could vary from finding a specific qualification or experience from within a company's ranks to a chatbot that actually works without talking in circles.

Those are just small examples of how a next-generation artificial intelligence - called artificial general intelligence, in this case - could be used and monetized. In September, when Microsoft assembled 5,000 engineers to work on AI, Shum specifically pointed out that such a technology could not only make Cortana and Skype more potent, but could be incorporated into Microsoft's popular cloud-based apps such as Office 365 and Azure to enhance the ease-of-use factor for those platforms.

You Ain't Seen Nothin' Yet

It's difficult to see, or sense, but Microsoft is developing its AGI know-how with as much of a philosophical bent as it is a technical one.

Just in time, too. As CIO's Matt Kapko observed in December , "While machine learning has generated tremendous interest throughout the enterprise, a wide gap still exists between research and beneficial use cases in the real world."

The ramped-up focus on AI (and this happened well before Maluuba) couldn't have come at a better time for Microsoft, either, and by extension, for owners of MSFT stock.

Calling a spade a spade, Microsoft largely missed out on the early phase of artificial intelligence; now it's play catch up. It's playing it well, though, particularly focusing on "bots" - or chatbots that can intelligently text-chat with a user - as the organization believes that's the interface that makes the most sense of such a platform. This kind of AI could potentially replace many of the touch-based apps found on your smartphone with one voice-based conversational tool that actually does everything the way you want it done.

President and principal analyst of Moor Insights & Strategy, Patrick Moorhead, has taken notice, too, commenting last month that "Microsoft surprised everyone in 2016 and I'm expecting more surprises in 2017." Specifically, Moorhead believes Microsoft will unveil an artificial intelligence that will not only be more powerful to individual consumers than Amazon's Echo, but will also serve a specific business (read "revenue-bearing") function. Incorporating Maluuba's know-how will only move the company closer to that end zone.

At stake is a piece of a market that could be worth $16.6 billion by 2022 . Tractica thinks the artificial intelligence market will be worth $36.8 billion by 2025 . Both are a far cry from 2016's estimated global AI revenue of $644 million.

Now, all of a sudden, Microsoft's intense interest makes sense.

Bottom Line for MSFT Stock

None of this is to suggest that that MSFT stock should be viewed first and foremost as an artificial intelligence stock, now or later. It's still a productivity-solutions stock, and AI simply helps the organization provide better solutions.

Nevertheless, Microsoft may well be working on one of the most marketable uses of artificial intelligence, serving enterprises in a very real way - beyond the home-utility that the Echo provides, while not imposing overkill with something like IBM's Watson. MSFT owners may soon find Microsoft quietly winning the AI war with an elegant, customizable solution to real challenges.

Even if few have come to fully appreciate just how potent this artificial intelligence product is.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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