Microsoft Corporation (NASDAQ:MSFT) has been grabbing headlines over the past week as analysts explore what the tech firm’s latest partnership with Amazon.com, Inc. (NASDAQ:AMZN) means for the company’s future. The two announced that they are making their virtual assistants, Cortana and Alexa, compatible. The decision combines two of the biggest smart-speaker rivals, giving them a leg up against competitors like Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Big News, But Not THE Big News
Amazon and Microsoft will allow their speakers to activate one another, so Alexa will be able to turn on Cortana and allow her to take over and vice-versa. That makes for a powerful home assistant duo because the thousands of skills available between the two will be a big draw to customers.
However, it’s important to consider that those skills are really only available at home.
Once a user exits their home, they are leaving both Cortana and Alexa behind because neither assistant operates on a mobile platform. That arena is firmly in the hands of Apple’s Siri and Google’s Assistant.
While Amazon and Microsoft have said they would be open to a partnership with either Apple or Google’s smart assistants, that kind of deal is very unlikely because their stronghold on the mobile assistant field could turn out to be their way into the home.
Both Google and Apple have their own smart speakers aimed at bringing their assistants into the home, and although Amazon’s Echo has an early lead with consumers, that may not be enough to hold on to the position.
Having a smart assistant is still a bit of a novelty right now, but the market is seen expanding as the assistants do more than just order pizzas and turn off lights. When you’re expecting virtual assistants to eventually become an indispensable part of someone’s life, it’s a pretty powerful competitive advantage to be able to offer one assistant that seamlessly transitions from home to mobile.
MSFT Makes Strides
That’s not to say that Google, Apple or even Amazon are offering the best assistants. In fact, many say that trophy actually belongs to MSFT, whose speech recognition technology has been developing quickly. The firm’s software was able to transcribe casual conversations with the same accuracy as human transcribers this year — a big leap forward.
That kind of accuracy for conversational speaking is important when you look to the future of smart assistants. Of course, there’s still the challenge of getting a device to understand and act rather than just transcribe, but having accurate speech recognition is the first step in creating a super-powered virtual assistant.
How Popular is Cortana?
So, even if Microsoft is able to design a really impressive home assistant, the question is whether or not people will keep using it. So far, Windows users appear to be making use of Cortana — the firm’s 4th quarter earnings call revealed that the assistant had fielded 8 billion questions from more than 100 million monthly active users. The data wasn’t broken out for how many of those questions were spoken, but the figures suggest that Cortana is getting some mileage.
That’s a good thing for MSFT because the more that machine learning is used, the more it can improve — so Cortana is continuing to developing as users tap into her knowledge. So far, competitors like Apple and Google haven’t broken out their virtual assistants’ user data, so it’s hard to say whether or not Cortana’s data is impressive. However, tech companies typically don’t bring up user data unless it’s positive, so there’s that.
The Bottom Line
The Cortana/Alexa partnership is great for Amazon and good for MSFT stock. It might give people a push toward using Cortana more, which would be a good thing for Microsoft’s ability to improve its AI and machine learning technology. However, while it merges two big virtual assistant competitors, it doesn’t fill the gap that either one really needs — mobile.
As far as the quality of Microsft’s AI and machine learning technology, the firm is killing it. However, I don’t think that makes MSFT a buy just yet. MSFT stock has a P/E of 28 and trades at 21 times its forecasted earnings — that’s expensive when you consider that GOOGL trades at 24 times its forecasted earnings and Apple’s forward P/E ratio is just shy of 15.
Unless there’s a pullback that takes Microsoft stock closer to its 52-week low, I don’t think there’s enough upside to buy.
As of this writing, Laura Hoy was long AAPL and AMZN.
