Microsoft may have won the AI battle, but Alphabet could win the war, analysts say

Microsoft won the first round in the battle to become the next big artificial intelligence leader, but analysts think Alphabet’s ability to overtake its competition in the long run shouldn’t be underestimated.

“In our view, Microsoft won the week, with better product strategy and demos, while Google’s presentation felt reactive with little new news, and even included an inaccurate AI chatbot response,” said Bank of America’s Justin Post in a note. “We think Google’s big reveal is still to come, which we would expect in weeks and not months.”

The commentary comes after both companies held competing AI events this week, showcasing their plans to build on the recent trend that’s overtaken the tech industry following the rollout of ChatGPT.

On the heels of its multibillion-dollar investment in ChatGPT creator OpenAI, Microsoft on Tuesday announced new AI versions of its Bing search engine and Edge browser. Google followed up on Wednesday with an event showcasing the capabilities of its AI chatbot Bard that was announced Monday.

Microsoft’s splash in the AI field has excited many in the investing community, but some analysts still think that long-dated AI investments from Google situate the company to put up a solid fight long term.

“We believe GOOGL has the AI tech and scale to maintain/grow its leading user base,” wrote Morgan Stanley’s Brian Nowak.

Bank of America’s Post agreed with that sentiment, saying that Google likely offers “superior AI technology for search, or at least better data to drive better results”. He also expects Google’s AI product visibility to improve over the next few months — and easily offset some higher AI search costs.

While Microsoft may have the “1st mover advantage” and a head start, share gains from Microsoft will take time to play out, said Citi’s Ronald Josey.

Given Google’s long history in developing important tech innovations, Wells Fargo’s Brian Fitzgerald called the idea that the company is “playing catch-up” within AI “naive.”

Some of these innovations include the search giant’s Language Model for Dialogue Application, known as LaMDA, which appears “years ahead” of ChatGPT, Mr Fitzgerald said.

Google’s event undoubtedly showcased the company’s “Catch-22 dilemma” and the drawbacks of moving too fast or too slow, but UBS analyst Lloyd Walmsley noted his confidence in the company’s ability to roll out and improve its AI products.

“To the extent MSFT shows any significant marketing support behind Bing, and if Google continues to delay, we might start to worry more about share loss and high decremental margins, but we are not overly concerned on this quite yet,” he wrote in a Wednesday note to clients.

CNBC