Thursday, May 23, 2024

Bulls, Bears Clash Over Google, OpenAI Search Advances

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Alphabet‘s (GOOGL) Google will roll out “AI Overview” as part of internet search results across the U.S. starting this week as it battles startup OpenAI in artificial intelligence capabilities amid licensing talks with Apple (AAPL). Google stock received a modest boost from announcements at an AI-focused event for software developers.


At Google I/O on Tuesday, Alphabet announced the release of AI Overview, formerly called Search Generative Experience.” Google expects the feature to be available to one billion users by year end.

AI Overview integrates Google’s “Gemini” generative AI model into search results. Following a search query, results include an AI generated summary at the top of the results page, followed by more traditional webpage links, some sponsored by advertisers.

OpenAI’s ChatGPT, unveiled in November 2022, provides answers to internet searches.

Generative AI leader OpenAI on Monday unveiled GPT-4o. It’s an improved AI model that’s much better at handling text, audio and images in real-time. Meanwhile, there have been reports Apple is in AI licensing talks for new iPhones with both Google and OpenAI.

Apple Courtship

“Given that both OpenAI and Google have provided updates on their AI capabilities, all eyes will now be on Apple and its progress at the upcoming WWDC 2024, taking place from June 10 to June 14,” said Bank of America analyst Wamsi Mohan in a report.

Further, Microsoft (MSFT) is the biggest investor in OpenAI. OpenAI on Wednesday said its chief scientist and co-founder, Ilva Sutskever, was leaving.

At Oppenheimer, analyst Jason Helfstein said in a report: “Relative to OpenAI’s limited product demo the day before, we believe Google demonstrated its strong competitive position, driven by an essentially unlimited R&D budget.”

At KeyBanc Capital Markets, analyst Justin Patterson said the Apple-Google relationship may be changing.

“We came away (from Google I/O) wondering if Android and iOS may be switching from coopetition to more competition given the frequency with which Google cited ‘Only on Android’ AI features,” Patterson said in a report.

Astra AI Assistant Unveiled

As it stands, Google makes payments to Apple that make it the default search engine on iPhones. Those payments are under scrutiny in an ongoing Department of Justice antitrust lawsuit versus Google.

At Google I/O, the company demonstrated an early version of its universal AI assistant, Astra, which is a real-time multimodal AI assistant.

At BMO Capital Markets, analyst Brian Pitz said in a report: “Bears likely argue recent OpenAI multimodal agent demos are more advanced/fluid, but we argue that Google leverages significant scale advantages (billions of users) and ecosystem integration longer term.”

Meanwhile, Google has been testing the economics of AI Overview responses vs. computing costs associated with its traditional search engine.

Google Stock: Ad Impact Of AI Overview?

Also, the company hosts Google Marketing Live on May 21.

At Jefferies, analyst Brent Thill said in a report: “Questions still linger whether Google will be able to fully offset the elevated costs and potential ad revenue cannibalization of SGE (AI Overview) with increased engagement and higher value ads. We believe generative AI will ultimately give Google an expanded role in search, as ‘Google will now do the Googling for you’.”

Google stock closed up 0.7% on Tuesday following the I/O event. In early trading on the stock market today, Google stock rose 0.6% to 171.33.

Meanwhile, Google stock holds an entry point of 153.78. GOOGL stock is extended and trades above a 5% buy zone.

“In our view, Google delivered in this year’s I/O against the mounting hype and doubts,” said Evercore ISI analyst Mark Mahaney in a report. “From this I/O, we also noticed a greater emphasis from Google on using gen AI to more tightly connect its services into one holistic experience. And, an emphasis on these new innovations being ‘Only On Android’.”

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.


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