Google just launched its Gemini AI model. Can its share price catch up?

What happened?

Alphabet, the parent company of online search giant Google, has seen better days. 

While Alphabet’s share price is up 49% year-to-date, it has lagged the strong share price performance of other tech giants this year. 

In comparison, the other stocks in the Magnificent 7 – Apple, Amazon, Meta, Microsoft, Nvidia and Tesla, have rallied by 55% to 201% so far this year. 

In other words, Alphabet is the worst performer amongst the Big 7 tech companies in 2023. 

Let us find out why Alphabet’s share price has trailed its peers, and if the company’s recently launched Gemini artificial intelligence (AI) model can help to boost investor sentiment. 

What investors may like about Alphabet

#1 – Catching up with Gemini AI model 

Google’s role in our daily lives require little introduction, with the word “Google” synonymous with “find and tell me something”. 

From its early days competing with Yahoo and Netscape in the 1990s, Google has emerged as the largest player in the search engine space. 

However, Google has been quiet for most of this year when it comes to sharing its artificial intelligence (AI) capabilities, which has been the focus of the tech world this year. 

Microsoft started the AI frenzy with its acquisition of ChatGPT. In July 2023, Meta also introduced Llama 2, its next generation open-source large language model.

While Google had announced its AI model called ‘Gemini’ previously, there was little news on its official launch.

Investors were rightfully concerned about the apparent lack of progress by Google in the AI compared to its competitors. 

Without AI functionalities, Google may not be as strong in predictive analytics, leading to a potential decline in its user base. 

On 6^th December 2023, Google finally launched its Gemini AI model to the relief of investors, and suggested that Gemini would be Google’s answer to Microsoft’s ChatGPT. 

So how does Google’s Gemini stack up against ChatGPT?

Post Gemini’s official release, initial reviews and benchmark testing results appear positive. 

The performance of Gemini in Math and Code areas tasks surpassed that of Microsoft’s ChatGPT in 30 out of 32 widely used academic benchmarks used in large language models (LLM) research and development. 

Apart from Gemini, Google has also launched Bard, its AI conversational chatbot. 

Bard can generate text responses based on user queries, as well as create images from text.

For instance, asking Bard “What are the must-see sightseeing spots in Kyoto” will generate visual answers in addition to text responses. 

This is a major upgrade to Google Search and Google Assistant.

In other words, Google appears to be catching up to be at the forefront of AI development. 

What investors may not like about Alphabet

#1 - Slowing Growth in Google Cloud

Alphabet disappointed investors with the performance of its Google Cloud division in the latest third quarter results.

If you are not familiar with Google Cloud, it is the service that Google provides to customers for data storage, data analytics, machine learning as well as management tools. 

Google Cloud also includes the subscription for Google Workspace for the use of apps like Gmail, Docs, Drive for productivity and collaboration purposes. 

While Google Cloud revenue contributes only 11% to Alphabet’s total revenue, this segment has been Alphabet’s fastest growing division. 

Google Cloud’s growth is of importance as this helps to reduce Google’s dependency on online advertising revenue. 

Sales growth in its Google Cloud segment slowed to 23% compared to the previous year. This marks a deceleration from the 28% growth in the second quarter. 

In addition, growth has slowed to the lowest level since the first quarter of 2021.

This slowdown is in stark contrast to Microsoft’s cloud business, where the sales growth of Azure accelerated to 29% in the third quarter. 

What Would Beansprout Do?

Alphabet’s share price has lagged its peers year-to-date due to concerns about slower growth in its Google Cloud segment. 

The lack of concrete AI features also led to questions on whether Google might be losing its technological dominance. 

However, Google has roared back in December with the official launch of Gemini, which has lifted sentiment on the stock. 

Most analysts also believe in the long term outlook of Alphabet, with more than 82% of them having a BUY recommendation on Google, with an average target price of $152.27 as of 15 December 2023. 

This represents a 15% upside from its current share price of $132.27 as of 15 December 2023. 

Looking back, Google has demonstrated its dominance in the search engine space, and subsequently entered the entertainment streaming segment with Youtube. 

With such a stellar track record, we would be looking out closely for how Alphabet will be able to compete effectively in the AI space as well. 

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