On Thursday, Alphabet, the parent company of Google, saw its stock surge by 6.5% during trading hours, marking its largest intraday percentage gain since July and adding over $80 billion to its market value. This surge was fueled by the market's enthusiastic response to Google's latest artificial intelligence model, Gemini, which has eased concerns about its position in the fiercely competitive AI field.
Alphabet's stock has climbed approximately 55% year-to-date, outperforming the Nasdaq 100 Index's roughly 47% gain for the year. Microsoft, another key player in the AI sector, has seen its stock rise by 56% this year. Alphabet's stock has been trading within a range in recent months, reflecting investors' keen interest in its AI initiatives.
Wall Street Analysts' Take Wells Fargo's trading division noted that Google's launch of Gemini should be enough to quell debates about Google's performance in AI. Ahead of Thursday's stock market opening, investors showed strong buying interest in Google, and sell-side analysts' reports were positive. However, the biggest question remains how Google will monetize Gemini. Overall, Wells Fargo believes Google has demonstrated that it still holds some advantages.
Analysts at Bank of America stated that concerns about Google's AI capabilities have pressured Alphabet's stock price this year. Therefore, a strong brand and competitive models could boost its consumer search business and enterprise cloud sales. "We believe Google possesses robust AI capabilities, and data indicates Google has top-tier, unique AI capabilities, which could positively impact its stock price in the first half of next year."
JPMorgan felt encouraged by Google's progress in this significant technological shift, despite Wall Street's mostly "yawning" response to Google's announcement on Wednesday. Although it's still early, the launch of Gemini represents a significant innovation for Google as we enter the second year of generative AI's commercialization and widespread distribution. However, uncertainties around the monetization path in the search domain will be a future hurdle.
KeyBanc analysts remarked that Gemini is the culmination of Google's numerous AI announcements this year. However, they believe it will take time for AI to meaningfully impact Google's growth and profitability. "Wednesday's announcement indicates that Gemini is still entering core products like search, so we advise patience in inferring its impact. While we believe 2024 will focus more on results than headlines, we also believe it's still early in terms of changing behaviors of advertisers, consumers, developers, and businesses."
Monetization Is Key It remains unclear whether Google plans to monetize Gemini across all its products, but it will license Gemini to customers via Google Cloud later this month.
Google executives claimed that Gemini outperforms OpenAI's GPT-3.5 chatbot, but they did not reveal its comparison with OpenAI's latest model, GPT-4 Turbo. Nonetheless, Gemini still indicates further opportunities for AI monetization.
Microsoft is actively monetizing, having recently launched Copilot, powered by OpenAI's ChatGPT, embedded in Word, Excel, and other Office programs, at a cost of $30 per person per month. By 2026, Copilot is expected to generate over $10 billion in annual revenue for Microsoft.
Alphabet's financial report in October showed the company's revenue returning to double-digit year-over-year growth for the first time in over a year, with core advertising revenue exceeding expectations and digital advertising market health. After negative growth since the fourth quarter of last year, generative AI's emergence has made cloud revenue, which grew 22% year-over-year but continued to slow and fell short of expectations, even more critical. The company's CEO stated they would make every necessary effort to maintain a leading position in AI. However, Alphabet's stock price fell 6% after-hours due to disappointing cloud division performance.