Google has looked at the cloud from both sides and wants a piece of the action.
The search engine giant, owned by Alphabet (GOOG) , wants to make cloud computing more affordable while pulling in more greenbacks.
Google wants to move into territory staked out by tech rivals Microsoft and Amazon. All three companies could also potentially square off against AI-chip kingpin Nvidia.
On April 9 Alphabet unveiled a central processing unit chip using an Arm Holdings design at the annual Google Cloud Next 2024 convention in Las Vegas.
The Axion chip is similarly designed to handle AI processes better than traditional central processing units, like Intel's x86 chips. The chip, alongside Google's Tensor processing units, made with help from Broadcom, can be used by Google Cloud customers to help them create AI apps.
“Our first custom Arm-based CPU designed for the data center delivers up to 50% better performance and up to 60% better energy efficiency than comparable current-generation x86-based (processor) instances,” Google Cloud Chief Executive Thomas Kurian said, according to the Economic Times.
The new custom silicon chip processor, which will become available for customers later in 2024, is already powering YouTube ads, the Google Earth Engine, and other Google services.
Analysts 'encouraged by Google's progress'
“Google Cloud is the only major cloud provider offering both first-party AI models and third-party AI models on equal footing, which is an incredible differentiator when our partners speak with customers," Kurian said during his keynote address.
Analysts have been reacting to Google's announcements at the cloud event.
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Wedbush analysts, who have an outperform rating and a $175 price target on Alphabet shares, said they came away from the event encouraged by Google's progress.
The firm said that Google’s most advanced model, Gemini 1.5 Pro, offers significantly larger context windows than leading competitors.
Wedbush said it was encouraged to see Gemini 1.5 Pro powering enterprise tools like Gemini Code Assist and broader use cases across the Gemini family of models that should drive direct monetization.
"We continue to highlight the strength of Alphabet's competitive positioning more broadly, supported by an unmatched breadth of data to develop and train AI models, AI-optimized compute infrastructure supported by custom silicon, access to leading engineering talent, and close integrations with partners across all layers of the generative AI stack," the analysts said in a research note.
The company's progress includes developing its AI capabilities and commercializing early enterprise solutions with the Axion announcement and a long list of generative AI services and features within Google Cloud that should support growth over a multiyear period, Wedbush said.
Analyst raises price target on Alphabet
The analysts said Google had announced hundreds of new partnerships since the company's previous Cloud Next event last August, and roughly 90% of generative AI unicorns are now Google Cloud customers, up from 70% in August. (Unicorns carry valuations of at least $1 billion.)
BMO Capital analyst Brian Pitz raised the firm's price target on Alphabet to $185 from $178, while affirming an outperform rating on the shares following its investor meetings.
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Search and Shopping Ads within the company's SGE, or Search Generative Experience, position the company's AI-enabled product to produce durable revenue growth in coming quarters as the most useful information is served to the users, the analyst said.
BMO added that Google's Search market share was up 0.2 percentage points in the U.S. to 93.7% from December 2023 to February 2024 compared with the November 2023-January 2024. Its global market share of 80% "remains stable."
Bank of America Securities analysts said that their top take on the event is Google's hardware advances, Gemini progress, and AI-driven application demos that "should help sentiment on AI capabilities, while the ability to ground models with Google search/data was an appealing capability."
B of A analysts said the Cloud AI cycle could be underappreciated for the industry and a positive driver for Google stock. The investment firm affirmed a buy rating and a $173 price target on the shares.
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