Google Fights Back Against Microsoft on Artificial Intelligence.

"Google never promised to move fast and break things. Still, the past three months have been long ones for investors waiting for the internet company to find its feet on artificial intelligence.

That wait seemed over following the kickoff of the Google I/O developers conference on Wednesday. In a keynote address that lasted more than two hours, Google unveiled a swath of new products and tools featuring the type of generative AI made popular via the launch of ChatGPT late last year. The technology is being integrated into Google's core search business as well as its Android mobile operating system and its burgeoning cloud computing service. Not all of the latest offerings are coming immediately. Some will at first roll out slowly through the experimental program called Search Labs.

Still, the news was enough to send the shares of parent Alphabet Inc. up more than 4% by Wednesday's close. That marks the biggest single-day stock reaction the developers' conference keynote has ever sparked. The stock jumped another 5% on Thursday, making for a nice change compared with the response Google got when it seemingly threw together an event in February that came one day after Microsoft made a serious splash when it announced it would incorporate ChatGPT technology into its Bing search engine.

Microsoft's announcement made clear its intention to go after Google's core search advertising business, which accounts for most of the company's revenue. Google's response was deemed weak and gave the impression the longtime internet search leader was now playing defense. Alphabet's share price slid 12% over the following three days. The stock recovered some ground later, but its 4.3% gain between Microsoft's Bing announcement and the start of its I/O event on Wednesday seriously lagged behind Microsoft's 19.6% gain over the same period.

"Redeeming itself after a disappointing Paris event in February, Google presented a much more coherent message about its generative AI strategy," wrote Brent Thill of Jefferies in a note to clients Thursday morning. Jason Helfstein of Oppenheimer wrote that the event "quelled near-term investor angst over lack of AI innovation."

Much remains to be seen about how competition will play out in generative artificial intelligence among Google, Microsoft and other tech titans such as Amazon.com and Facebook parent Meta Platforms that are investing heavily in the technology. Google and Microsoft also are competing in many other areas other than search. 

Google spent part of Wednesday's event demonstrating a tool called Duet AI, which can help write emails and create spreadsheets -- similar to the AI tool called Copilot that Microsoft showed off in March for its own Office tools. Google also is bringing several AI offerings to its cloud service, though its cloud revenue is much smaller than those of leaders Microsoft and Amazon.

But search was seen as Google's greatest vulnerability to Microsoft's leapfrogging with AI. That threat isn't gone: Microsoft's prowess in cloud computing and its financial resources make the company the best suited even among other tech behemoths to challenge Google on its home turf. And while Bing's share of the global search market doesn't seem to have budged over the past few months, according to data from Statcounter, it is still very early.

Google at least no longer seems to be on the back foot. The more complicated reality is that generative AI won't be dominated by only one player -- even one as powerful as Microsoft.

"We don't believe there will be only one AI winner," wrote Mark Mahaney of Evercore ISI. "We just believe the narrative that Google would be Generative AI roadkill was just plain wrong and ignoring the years of AI and [machine-learning]-related investments that Google has made," he added in a report Thursday.

The AI race among big tech companies is really afoot now." [1]

1. Google Fights Back Against Microsoft on Artificial Intelligence. Gallagher, Dan. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 12 May 2023: B.12.