Google Accelerates AI Innovation: JPMorgan Bullish On Alphabet As Apple-Microsoft Rivalry Intensifies

Alphabet Inc. GOOG GOOGL is on the offensive, rapidly advancing its AI capabilities despite market noise and competitive pressures.

Following impressive showcases at Google I/O and Google Marketing Live (GML), the company is pushing boundaries in generative AI, aiming to reshape search and advertising.

The Google Analyst

JPMorgan analyst Doug Anmuth reiterates an Overweight rating on Alphabet, with a price target of $200 by December 2024. Anmuth highlights Google’s aggressive pace in AI innovation, which he believes will overshadow short-term setbacks.

“The company is on the offensive in Gen AI, w/a faster pace of innovation as AI Overviews in Search expand to general users & advertisers,” Anmuth said.

The Google Thesis

Market Position and AI Innovation

Anmuth notes that Google's AI Overviews in Search are now expanding to general users and advertisers. This is driving higher satisfaction and more complex queries.

Early inaccuracies are being addressed with technical improvements, ensuring that Google’s AI remains a powerful tool for enhancing search results and driving quality traffic.

AI Partnerships and Competitive Landscape

“In terms of WWDC, the growing likelihood of an Apple Inc AAPL –OpenAI partnership around GenAI is a concern for investors,” Anmuth said. This could potentially position OpenAI (and Microsoft Corp MSFT) ahead in the AI race.

However, Anmuth suggests Apple might still consider partnering with Google for its Gemini project, given their established relationship.

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Google I/O & GML – Key Highlights

The following are some key announcements that impressed JPMorgan the most, from the “100+ announcements” at the I/O and GML events:

1. Gemini Integration: AI Overviews in Search to reach over 1 billion users by year-end, with enhancements like Project Astra and Gemini Advanced promising significant improvements.
2. Multimodal Interactions: Expansion of Gemini's capabilities, including the lightweight Gemini Nano, making AI more versatile and efficient.
3. LLM Advancements: Introduction of new models like Gemini 1.5 Flash, Veo (video generation), and Imagen 3 (image generation), highlighting a diverse AI strategy.
4. Google Cloud TPU: The new Trillium TPU showcases a leap in performance and energy efficiency, reducing latency and costs for AI products.

Monetization AI Advancements

Google's testing of Search and Shopping ads in AI Overviews marks a strategic move to monetize AI advancements.

The appointment of Anat Ashkenazi as CFO, succeeding Ruth Porat, brings a fresh perspective and strategic focus to Alphabet's financial leadership.

Despite competitive pressures and early AI rollout challenges, Anmuth expresses confidence in Google’s strategic direction and accelerated innovation.

The reiterated Overweight rating and $200 price target reflect a bullish outlook on Google's diversified AI monetization path through Search, Cloud, and other 2B+ user products.

As Google refines its AI capabilities and expands its market presence, the future looks promising for the tech giant and its stakeholders.

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