Alphabet needs to show investors how prowess in that technology will translate into higher sales. (REUTERS)

In the race against Microsoft, Alphabet must demonstrate a clear strategy for generating AI sales

Investors have recently reminded Alphabet Inc. of the significance of maintaining a favorable perception regarding their successful AI strategy.

The Google owner added $87 billion in market value in a single day last week after showing off the features of its Gemini big-language model, which it claims will compete with OpenAI’s ChatGPT. To maintain these gains, tech

“The whole business model depends on getting this right,” said Gene Munster, founder and CEO of Deepwater Asset Management, whose firm owns shares. “If they can achieve multimodal generative AI, it will attract Google usage, and increased usage will protect and grow the search business.”

Alphabet shares rose 0.5% on Thursday.

Alphabet has been worried all year that it has fallen behind Microsoft Corp. in the artificial intelligence race. In recent months, its shares have lagged behind its rival, which has integrated OpenAI’s ChatGPT technology into its software and cloud products. The Gemini demonstration even drew criticism from workers who said it seemed to exaggerate the model’s current abilities.

The third-quarter earnings season appeared to underscore fears about Alphabet’s position, with Microsoft touting the growing impact of artificial intelligence on Azure’s growth, while Google Cloud results disappointed. In the stock market, the gap between the two companies has widened, with Microsoft hitting a series of highs this year. Alphabet remains about 11% below its all-time high in 2021.

Still, Alphabet’s demonstration of Gemini’s ability to produce both text- and image-based responses to prompts went a long way to showing that the company is still in the game. On Wednesday, Google announced Gemini Pro for businesses, which allows developers to build apps using a new AI model.

“An early look at Gemini suggests that the expected loss of Google’s AI ambitions has been greatly exaggerated,” said Neil Campling, founding partner of Chameleon Global Capital. “Investors are likely to revisit the stock once they see evidence of cloud computing revenue growth and market share gains.”

Few would dispute that Alphabet is a major player, given its years of investment and vast amounts of data, but it has struggled with the perception that it is lagging behind OpenAI.

According to data collected by Bloomberg, Microsoft’s revenue is expected to grow slightly faster than Alphabet’s over the next few years. However, both are seen growing at double-digit rates – and Alphabet’s shares are much cheaper.

The stock is traded at less than 19 times the estimated earnings. That’s well below Microsoft’s multiple of 31 times and the Nasdaq 100’s multiple of nearly 25. Also, while both Microsoft and the index are higher than their long-term averages, Alphabet is trading at a discount, suggesting room to expand.

“Clearly Microsoft is winning at the moment. It has been more successful in communicating, implementing, bringing the right products to market and getting them to promote growth,” says Harding Loevner global equity portfolio manager Chris Mack.

“There’s been a gap between what Alphabet does and what the market understands,” he said. “Gemini’s launch was an announcement to the market that it is making AI a priority in its strategy.”

Today’s technical map

The rally of Apple Inc., the world’s most valuable publicly traded company, shows no signs of slowing down. Ending at a record high on Wednesday, the market value of the iPhone maker is approaching the market value of Europe’s largest stock market: France.

High tech stories

Amazon.com Inc. won a dispute at the European Union’s highest court over a 250 million euro ($272 million) bill for alleged illegal tax breaks.
German state aid to expand domestic semiconductor production is not at risk, according to two senior officials, despite the budget turmoil caused by last month’s Constitutional Court ruling.
India’s government said it is not currently considering reducing taxes on imported electric vehicles, which could delay Tesla Inc’s plan to enter the market.
Chinese-owned online marketplace Temu has sued fast fashion rival Shein in the US for “enhanced” anti-competitive practices, reviving a legal battle between the e-commerce startups after both dropped previous suits against each other.