Chatbot Market Potential

Chatbot Market Potential

Microsoft (Nasdaq: $MSFT) announced further investment in OpenAI in Jan 2023 estimated at $10bn. Microsoft remains the exclusive infrastructure provider to the AI start-ups.

  • According to Microsoft CEO, Satya Nadella, the company “built a supercomputer to administer the OpenAI work”. Additionally, this computer also has the potential to “handle some AI calculations at half the cost of its rivals”.
  • Usually, the technology and infrastructure behind a supercomputer are extremely expensive. So, the development of large AI language models influenced by cost reduction capabilities.
  • Products like OpenAI’s ChatGPT – “a chatbot that can converse with users through text” all require a supercomputer to perform. Currently, the estimated running cost of ChatGPT for 10m monthly users is $1m per day.
  • The string of cloud-related partnerships announced between large-caps and AI groups continued with Google’s (Nasdaq: $GOOG) recent $300m bet on Anthropic and Amazon’s (Nasdaq: $AMZN) partnership Stability AI – “preferred cloud partner for building and training its media-generation models.”(Press-About Amazon, 2022)
  • According to AI researchers, AI language models such as GPT or Google’s PaLM – with billions of parameters require stable hardware. Once these AI models have been built, deployed and the training process started it is very difficult to move them between different platforms.


ACF view

Advantages of using chatbots:

Conversational bots or Chatbots are potentially powerful tools across a wide range of sectors including e-commerce, health and entertainment. The new generation of chatbots also have valuable applications in on-site mining safety and operations combined with new low cost data capabilities offered by satellite constellations.

We also assess that the new generation of chatbots will probably almost completely replace retail phone based customer service and social media management and basic (but not technical) language translation (we recently entered into a partnership with a professional technical translation agency).

In early tests at our own firm, ChatGPT would appear to be on the verge of replacing much of the daily work of the junior desk assistant position, or perhaps it will offer the opportunity for everyone to have a junior virtual desk assistant.

The preference for chatbots is triggered by their broadly limitless availability, relative speed and consistency and, currently, cost-effectiveness, productivity and personalized response capabilities. (ACF Equity Research; Startupsash blog, 2023)

ChatGPT has the underlying ability to revolutionize customer interaction for many businesses. As this particular AI chatbot was created to understand and respond to natural language and generate human-like text, as well as to process large amounts of data. It also has interesting implications for operations across a business and for the challenges facing start-ups.

Microsoft (MSFT) is already building out OpenAI’s ChatGPT capabilities into its Office software and its Bing search engine.

In Exhibit 1 below we present some of the largest cap tech companies already using the same base technology as ChatGPT’s in their customer service chatbots, including the slightly lower valued Meta Platforms (Nasdaq: $META) and Shopify Inc. (NYSE: $SHOP). (Forbes, 2023)


Exhibit 1 – Peer group table of large cap companies using chatbots

Peer group table of large cap companies using chatbots

Sources: ACF Equity Research; Refinitiv.


AI experts however advise caution against generative AI’s creativity and unpredictability. Also, Chatbots’ usage presents some disadvantages like:

Limited capabilities – Ability to handle complex or nuanced requests is unconvincing as is reliability of factual or mathematical responses.

Lack of true humanity – Such as human empathy. The platforms are after all only mimics.

Security concerns – If chatbots are not properly secured there is significant potential for leakage of sensitive information.

Language limitations – Leading to misunderstandings, when Chatbots encounter non-standard language or accents. (Ans ChatGPT, 2023)

Revenues from the global Chatbot market are forecasted to touch US$ 10.5bn by 2026E up from US$ 3.49 bn in 2021A. (Markets and Markets, Research and Market, 2022). This US$ 10.5bn estimate captures both rule based and AI Chatbots and is segmented into solutions (platforms and software) and services (managed and professional). Markets & Markets expects services to grow faster than solutions over the forecast periods.

The US$ 10.5bn 2026E value forecast may turn out to be a significant underestimate. However, the risk is that because this is the latest hot sector in investor minds, a great deal of capital could be wasted through rash investment decisions driven by fear of missing out (fomo).

In Exhibit 2 below we have created a consensus low case forecast to show expected revenue generated by the Chatbot market between 2018A and 2026E. Our forecast has a CAGR of  26.2%.  We assume peak growth in 2023 due to huge publicity and interest in OpenAI and ChatGPT and then a return to around 24% y/y for our 2026E forecast year.

In our view, both sets of estimates will turn out to be ‘somewhat’ on the low side, though that does not mean that a great deal of capital will not be misallocated.


Exhibit 2 – Chatbot market size worldwide ACF low case consensus forecast US$(m) 2018A-2026E

Chatbot market size worldwide ACF low case consensus forecast US$(m) 2018A-2026E

Sources: ACF Equity Research consensus forecast; The Insight Partners. Markets & Markets et al


The overall view on AI chatbots and especially ChatGPT, despite disadvantages, is that these are extremely useful tools for any business regardless of sector – amongst other contributions they have the ability to redefine and make many jobs far more interesting by removing another slice of mundanity.

Generations entering the workforce now are demanding a lot more stimulation in their work. Away from the hype, tools such as ChatGPT look as if they will be a boon for improving employee satisfaction, engagement, creativity and conceivably, productivity.




Authors: Anda Onu, Christopher Nicholson – Anda is part of ACF’s Sales & Strategy team, Christopher is ACF’s Head of Research. See their profiles here




To know more email and follow us on
acf equity research linkedin
acf equity research twitter
acf equity research instagram
acf equity research facebook