Google May Have an Under-Appreciated Advantage in the AI Arms Race

Alphabet’s uncertain standing in the AI arms race has been cause for concern among investors lately. But recent Morgan Stanley research suggests the search giant may have an under-appreciated advantage. 

Google’s Gemini saw a larger increase in usage between September and March than its primary competitors, Meta AI and OpenAI’s ChatGPT, according to Morgan Stanley. And in March, about 40% of survey respondents used Gemini on a monthly basis, compared with ChatGPT’s 41% and Meta AI’s 39%. 

Gemini was also more widely used as a commercial tool than its competitors. Forty-six percent of respondents used Gemini to research new products in March, while 37% used it to compare prices and 34% shopped on the platform. ChatGPT was used by 41% of respondents to research products, 31% to compare prices, and 25% to shop. 

“This in our view speaks to GOOGL’s still entrenched user behavior within commercial activity,” Morgan Stanley analysts wrote. “The key from here is again for GOOGL to ship further Gemini/TPU enabled capabilities across its leading user bases and data sets to maintain its leadership at the top of the commercial funnel.”

Investors have grown increasingly worried about the impact AI will have on Google’s (GOOG) (GOOGL) bread-and-butter search business. Comments from an Apple executive earlier this month amplified Wall Street’s concerns that the rising popularity of AI is eroding Google’s dominance in the online search market. (Google, for its part, has rolled out AI summaries on its search engine, and recently said it monetizes AI queries at the same rate as traditional search.)

Google’s search business also faces a threat from antitrust regulators, who successfully argued last year that the company operated an illegal search monopoly. They have recommended the company be forced to sell its Chrome web browser, end exclusive distribution agreements with device makers like Apple, and share its search data with competitors.

The company is likely to spotlight commercial applications during its annual Google I/O developer conference, which kicks off with a keynote from CEO Sundar Pichai on Tuesday afternoon. Google’s AI stack, Gemini API, and Gemma open models are among the AI features being pitched to developers. 

The event could be pivotal for the tech giant in its effort to reframe the narrative around its AI opportunity. “We believe Google is heading into its innovation phase of AI and the worries around search days in the rear view mirror are way overdone,” wrote Wedbush analysts in a note on Tuesday.