According to Baird, the AI counteroffensive from tech powerhouse Google (Alphabet (NASDAQ:GOOGL)) is taking shape, and the firm is keeping an eye on two key Google AI developments.
Analysts, who have an Outperform rating and $140 price target on GOOGL shares, told investors Friday that Gemini LLM could "level the playing field with OpenAI" or even surpass it, while the "next-generation Google TPUs (v5) may be the only viable competitor for Nvidia (NASDAQ:NVDA) high-end GPUs."
Baird stated that Google is spending billions of dollars annually on AI-related infrastructure, applications, services, and foundational models, including the development of its own proprietary chip that can handle high-level AI/ML workloads.
"We continue to believe Google TPUs are a meaningful competitive advantage among cloud service platforms due to their specialization for running AI/ML applications for GCP customers, and also relieving Google of some bottlenecks around Nvidia GPU availability," argued the analysts.
Expanding on the view that the Gemini multi-modal model could leapfrog ChatGPT, the analysts explained that earlier this year, they hosted several expert calls that suggested Google would level the playing field with OpenAI later this year.
"We believe Gemini could meaningfully narrow the gap, or even establish a leadership position among the publicly-available LLMs - benefiting both GCP and core Google apps," the analysts said.
Overall, Baird believes that while Microsoft/OpenAI may have won the first leg of the GenAI race, Google is making meaningful progress and "leveraging tools that, to a large extent, existed internally."
"We expect Google Cloud to grow at least 20% Y/Y in 2H23, and at least 15% again in 2024, holding or gaining cloud share, at modest levels of profitability, and surpassing YouTube as the company’s second-largest revenue segment," they concluded.