Key Takeaways:
- Alphabet stock rises by 6% following the launch of Google’s new generative AI model Gemini.
- Gemini’s introduction has helped Alphabet make up $80 billion in market value.
- Despite the developments, Google continues to trail behind Microsoft in the AI field.
On Thursday, Alphabet, the parent company of Google, saw its shares surge by 6.5% during trading hours as the tech world cheered the launch of its new generative artificial intelligence language model Gemini.
The largest intraday percentage gain since July has added over $80 billion to the tech behemoth’s market value. Gemini’s launch also eases pressure on Alphabet about its position in the highly competitive AI sector.
Alphabet’s Adds $80 Billion To Market Value Following Launch of Gemini AI
Alphabet was long considered the leader in AI research but lost its spotlight late last year following the launch of OpenAI’s infamous chatbot ChatGPT.
The large language model’s advanced capabilities and immense popularity led to Microsoft purchasing a 49% stake in the startup and incorporating ChatGPT’s technology into its various products and services.
Google claims that its Gemini LLM is much faster and way more capable than OpenAI’s GPT-3.5 and GPT-4 models. Gemini is said to be a multimodal AI that can read, understand, and generate different data types, such as text, audio, video, and code.
The generative AI comes in three versions: Gemini Ultra, Gemini Pro, and Gemini Nano, with each designed to use a different amount of processing power.
The company unveiled Gemini Pro on its AI search engine tool Bard, and Gemini Nano on Pixel 8 and 8 Pro. The most capable of the bunch, Gemini Ultra, is expected to be rolled out through Bard sometime in 2024.
Related Reading: Google Announces Gemini For Bard. Here’s How To Use The AI Chatbot
Analysts Say The Launch of Gemini Has Eased Pressure On Google
Alphabet’s stock climbed 55% year-to-date, outperforming the Nasdaq 100 Index’s 47% gain for the year. This is in stark contrast to the events of February when Google announced Bard but shared false information in a promotional video that led to a nearly $100 billion selloff.
Bank of America analysts said that concerns over Google’s ability to deliver on the AI front have pressured Alphabet’s stock price this year. Therefore, a strong and competitive LLM could boost its consumer search business and enterprise cloud sales, noted the analysts.
They also added that Google’s possession of robust AI capabilities and data make the company “top-tier” and “unique”, all of which could positively impact its stock price in the first half of next year.
Macquarie analysts highlighted in a note that Gemini’s release “comes at an interesting point in time” when users have been complaining about how OpenAI’s latest updates to the ChatGPT model family have “potentially impacted the quality of its output”.
If Google can ship a “GPT-4 beating model” in Gemini, then it could help gather user and developer momentum behind the company, wrote the analysts.
Google premiered a six-minute video showcasing Gemini’s various abilities. It could recognize sleight-of-hand magic tricks and also suggest creative ideas to users based on materials and their color.
At the launch event, Google executives claimed that Gemini was able to outperform GPT-3.5. However, they did not reveal its numbers against OpenAI’s latest model, GPT-4 Turbo.
Analysts at KeyBanc remarked that it will take time for AI to impact Google’s growth and profitability. Also pointing out that Gemini is the culmination of the company’s various AI-related announcements this year.
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Google Left In The Dust By Microsoft On The AI Front
While it remains unclear whether Google has plans to monetize Gemini across its products. There are reports that the company will license the LLM to customers via Google Cloud services.
On the contrary, Microsoft is actively monetizing its AI model Copilot, which is powered by ChatGPT. Copilot has already been embedded into Office programs like Word and Excel at a subscription fee of $30 per month, Windows 11, and the Bing search engine.
Microsoft expects Copilot to generate over $10 billion in annual revenue by 2026. The tech giant has already integrated the model into its Microsoft Azure cloud service that is being used by big businesses. Google Cloud has so far trailed Azure.
In the quarter ending in September, Google Cloud slowed to a three-year low, while Microsoft Azure soared. Analysts say this is because Google is targeting startups to use its software services, which according to them have curtailed the company’s spending in an uncertain economy.
The shares of both companies have rallied around 50% this year, thanks to the broader AI-fueled rally in big tech stocks that has driven most of Nasdaq’s gains for 2023.
Ken Mahoney, the CEO of Mahoney Asset Management, said that despite the criticism aimed at Google for being late to the AI party, the company wants to get it right and they “obviously” see the huge opportunity presented by the market.
Alphabet’s financial reports in October showed the company’s revenues returning to double-digit year-over-year growth for the first time in over a year. After experiencing negative growth since Q4 2022, the emergence of generative AI has made its cloud revenue even more critical.
Alphabet CEO Sundar Pichai promised that the company would make the necessary efforts to become a leader in AI. However, Google’s stock dropped 6% after-hours on Thursday due to the disappointing performance of its cloud division.
Google Cloud, which grew 22% year-over-year, continues to slow down and has fallen short of the company’s expectations.
