AI race heats up as Alphabet launches ‘full frontal attack’ at I/O

Oppenheimer continues to believe Google Search volume has been uninterrupted by ChatGPT

Alphabet (GOOGL) is in the spotlight on Thursday following yesterday’s kickoff of Google’s I/O developers conference, where the company announced several new gadgets and software updates with a special focus on artificial intelligence. Jefferies called the event “one of the most substantial in years” as Google “presented a much more coherent message about its generative AI strategy” and launched a “full frontal AI attack.” Also commenting on the I/O conference, Oppenheimer said the presentation largely quelled near-term investor angst over the lack of AI innovation versus Microsoft (MSFT) and OpenAI.

AI UPDATES AT I/O: During its keynote presentation to start the I/O developers conference on Wednesday, Google unveiled new AI tools. Among those were Gmail Help Me Write, which helps users automatically write a draft email based on limited information and Google Maps’ Immersive View for Routes, which gives users the opportunity to zoom down a 3D representation of their desired route. Additionally, Google announced new ways for users to collaborate with Bard. "Coming soon, Bard will become more visual both in its responses and your prompts," Google added. "You’ll be able to ask it things like, ‘What are some must-see sights in New Orleans?’… You’ll also be able to include images – alongside text – in your own prompts, allowing you to boost your imagination and creativity in completely new ways. To make this happen, we’re bringing the power of Google Lens right into Bard.”

Google also said it is "supercharging search" and offered a look at its first steps toward improving Search with generative AI. "With new generative AI capabilities in Search, we’re now taking more of the work out of searching, so you’ll be able to understand a topic faster, uncover new viewpoints and insights, and get things done more easily," the company said.

"With generative AI in Search, we can help you understand the full picture when you’re shopping, making even the most considered and complex purchase decisions faster and much easier… this new generative AI shopping experience is built on Google’s Shopping Graph, which has more than 35 billion product listings – making it the world’s most comprehensive dataset of constantly-changing products, sellers, brands, reviews and inventory out there. In fact, every hour, more than 1.8 billion listings are refreshed in our Shopping Graph to give people fresh, reliable results."

FULL FRONTAL ATTACK: Jefferies described Wednesday’s Google I/O developer conference as "one of the most substantial in years," and one at which the company "redeemed itself" after a disappointing Paris event in February. With updates across both consumer and business use cases, and advances in the core Search, Workspace, Google Cloud, and Android, Google "presented a much more coherent message about its generative AI strategy" and launched a "full frontal AI attack" at I/O, says Jefferies, who sees momentum accelerating and expects monetization before year-end. The firm has a Buy rating and $130 price target on shares of Google parent Alphabet.

BofA also noted that Google I/O keynote was "packed with announcements" featuring AI integration into products including Search, Maps, Android, Cloud, and Google Workspace, arguing that Google’s presentation was "a big improvement from the disappointing press event in February." Google showed off a strong framework for AI chatbot integration into search and the I/O presentation helped address three primary AI-related search concerns, namely product, cost and monetization, says the firm. BofA maintains a Buy rating on Google parent Alphabet with a $128 price target on the shares.

Also commenting on the event, Oppenheimer analyst Jason Helfstein noted that based on the 3% increase in stock from the start of the event, the presentation largely quelled near-term investor angst over the lack of AI innovation versus Microsoft and OpenAI. While some GenAI capabilities shown were similar to features offered by ChatGPT, management showcased integration into Search, while keeping blue links relevant. Also showcased integrations with Gmail, Photos, Docs, Cloud & Maps. Oppenheimer continues to believe Google Search volume has been uninterrupted by ChatGPT, with The Information reporting that Microsoft is dissatisfied with the lack of Bing share gain, further supporting the firm’s bullish thesis on Alphabet. Oppenheimer has an Outperform rating on Alphabet’s shares with a price target of $145.

PRICE ACTION: In Thursday morning trading, shares of Alphabet have gained almost 5% to $117.21, while Microsoft’s stock has dropped a little over 1% to $309.04.