Google believes that it can profit from generative AI. Microsoft Is Already

TFD – Delve into the perspectives of shareholders regarding Alphabet and Microsoft’s AI initiatives, Copilot, Gemini, and Google search. Uncover how these tech giants are navigating the generative AI landscape and their impact on shareholder confidence in this insightful narrative.

Alphabet CEO Sundar Pichai is confident that Google will find a way to make money selling access to generative AI tools. Microsoft CEO Satya Nadella says his company is already doing it.

On Thursday, both businesses revealed higher-than-expected quarterly sales and profits. Both companies’ stock values skyrocketed in response to the news, with Alphabet’s fresh intentions to repurchase more shares and declare its first-ever dividend providing even more support.

However, based on their executive statements and internal data, Microsoft and Google appear to have differing short-term prospects, at least with regard to their generative AI initiatives. Which of the rivals receives a larger share of the hundreds of billions of dollars that are anticipated to be spent on such software in the upcoming years may depend on how investors, employees, and potential clients view their competing efforts.

During a Thursday call with financial analysts, Nadella boasted that 1.8 million Microsoft users currently utilize GitHub Copilot, a generative AI tool that assists engineers in writing software code. This is an increase from 1.3 million clients a quarter prior.

Sixty-five percent of Fortune 500 companies use Copilot for Microsoft Office 365, a virtual assistant that helps employees write emails and documents using generative AI; sixty-five percent use a Microsoft Azure Cloud service that gives them access to generative AI software from OpenAI, the company that makes ChatGPT. According to Nadella, “Azure has become a port of call for pretty much anybody who is doing an AI project.” Microsoft’s $13 billion investment in OpenAI has undoubtedly contributed to the acquisition of those clients.

The excitement surrounding AI services contributed to a seven percentage point increase in revenue for Microsoft’s largest division, cloud services, over the previous year. As a result, the company’s entire revenues increased by 17% to almost $62 billion. Nadella continued, “It also gained cloud market share.” When compared to the same quarter last year, Microsoft secured eighty percent more $100 million in cloud transactions, while the number of $10 million deals doubled.

Pichai of Alphabet also had accomplishments to be proud of. In a separate call, he informed analysts that 60% of generative AI businesses with investor backing are Google Cloud customers, and that over a million developers use Google Cloud’s generative AI capabilities. Additionally, Google’s advertising clients’ ad campaigns are benefiting from generative AI.

However, Pichai omitted to disclose the number of new users that Google has attracted to Gemini Advanced, a $20 monthly membership plan that grants users access to the business’s most sophisticated AI chatbot and was introduced in February.

Regarding Google’s primary business, search, Pichai withheld revenue data pertaining to tests utilizing generative AI to condense query results. If users spend less time conducting further, more focused queries, Google may find that it has fewer opportunity to display search advertising as a result of giving searchers more direct answers. It may also be necessary for Google to change the kinds of ads it displays.

According to Pichai, the experiments indicate that consumers who are exposed to generative AI-powered search are conducting more searches, but they may also result in lower profits for Google due to the higher expense of the underlying technology required to power more sophisticated searchers than running its established systems.

Picahi seems unconcerned about either front. He declared, “We are extremely confident that we can control the cost of how to answer these inquiries.” “I have no doubts whatsoever that we can successfully handle this monetization shift as well. It will come to pass gradually.

Alphabet’s total revenue increased by 15% to around $81 billion.

About $12 billion was invested in infrastructure, including as servers and datacenters, by it and Microsoft in the same quarter. However, it appears from Thursday’s statements and results that Microsoft is getting closer to delivering a reward.

Shareholders are currently granting both firms some leeway. As of Thursday’s end, Alphabet’s shares had increased 51% over the previous year, and Microsoft’s had gained 35%. Both of them are close to reaching record highs. However, the trendlines may soon diverge if users continue to swarm Copilot and the futures of Gemini and Google search don’t become more apparent.