Google emerges from AI laggard status to lead the race against OpenAI and Nvidia

The stock market believes Google is now winning the AI race over OpenAI, Nvidia

Alphabet-owned Google just gained a leg up over OpenAI's ChatGPT, according to recent stock market performance. Shares of Alphabet and its chip partner Broadcom are surging this quarter as its new version of Gemini AI was released, while proxies for the private OpenAI -- Nvidia and Microsoft -- underperform. Google, once considered an AI laggard, stunned the market last month with th e release of its Gemini 3 AI model , which surpassed and matched several of the capabilities of ChatGPT and GPT-family models in industry benchmark tests. Google also released its latest custom silicon chip, its 7th generation Tensor Processing Unit called Ironwood, in November and reports later emerged that the company is preparing to make its TPUs available for other companies beyond Google Cloud, adding another revenue stream for the search giant. Nvidia and OpenAI share a close relationship -- Nvidia's GPUs power much of OpenAI's ChatGPT model, and the companies have a strategic partnership to deploy at least 10 gigawatts of AI data centers with a phased investment of up to $100 billion from Nvidia. Microsoft has been a major investor in OpenAI and owns almost a third of the newly structured for-profit entity. Since Google's Gemini 3 model release on Nov. 18, the stock market has apparently decided Alphabet is now the AI leader. Wells Fargo chief equity strategist Ohsung Kwon pointed this divergence out to clients in a note this week, saying the valuations of the proxy stocks tell the tale. Shares levered to OpenAI's ChatGPT model and to Nvidia graphics processing units (GPUs) are for the first time since 2016 trading at a discount compared to those levered to Google's Gemini AI model and the search company's custom Tensor Processing Units (TPUs), per their relative forward price-to-equity ratios, according to Kwon. "Now, Gemini/TPU stocks trade at a premium relative to ChatGPT/GPU peers for the first time in nearly a decade -- the market is saying GOOGL is winning the AI race," Kwon wrote the note to clients. 'Code Red' OpenAI chief executive officer Sam Altman may be getting the message the market is sending. Altman told employees on Monday that the company is announcing a "code red" effort to improve the quality of ChatGPT and is delaying other products to focus on that effort, according to a Wall Street Journal report . OpenAI has been facing pressure from Gemini's quickly climbing user base, which was at about 650 million in October compared to 450 million in July. Nvidia is similarly battling concerns about Google's in-house chips. Some investors think Google's TPUs could take away Nvidia's chip dominance, particularly after a report claimed that one of Nvidia's biggest customers, Meta, is exploring using Google's chips for its data centers. Nvidia, after seeing its stock fall 3% on the reports, said in a recent X post that it "is a generation ahead of the industry" with more powerful chips than Google. GPUs serve a wide range of parallel computing tasks, while TPUs are used for specialized tasks. "The enthusiasm may be overdone, but what's certain is that AI is no longer a tide that lifts all boats," Kwon continued. "The trade is becoming more nuanced and idiosyncratic: the average pairwise correlation of stocks in the Nasdaq 100 have plummeted to 14%, an all-time low, suggesting winners and losers are starting to emerge." Alphabet stock significantly outperformed its 'Magnificent 7' peers during the month of November, which saw several tech stocks sell off. Shares of the Google parent have rallied more than 66% this year and are up about 30% this quarter. Investors can look at Broadcom's surge as also a sign of soaring interest in TPUs, which are a kind of application-specific integrated circuit, or ASIC. Broadcom has long helped design and manufacture Google's chips and dominates the market for custom ASICs. Its now up about 65% year to date. GOOGL NVDA,AVGO 1Y mountain One-year stock performances of Google parent Alphabet, Nvidia and Broadcom. Nvidia, meanwhile, has fallen under pressure after two years of blockbuster gains. The stock is up about 35% year to date, but down more than 2% this quarter.

Once Viewed as an AI Laggard, This "Magnificent Seven" Company May Now Be Winning the AI War | The Motley Fool

The large tech conglomerates are constantly trying to outdo one another in the non-stop race for artificial intelligence supremacy. Alphabet (GOOG 1.56%)(GOOGL 1.77%) entered the year in a precarious position. The company faced a lawsuit from the U.S. Department of Justice (DOJ) that threatened to significantly impact its business. Meanwhile, the emergence of conversational chatbots, like OpenAI's ChatGPT, prompted a wide swath of investors to question whether Google could maintain its dominant position in the ever-evolving search space. Fast-forward to today, and not only has Alphabet seemingly overcome these challenges, at least for now, but the stock has also rocketed nearly 68% higher (as of Nov. 26). Once viewed as an artificial intelligence (AI) laggard, Alphabet now appears to be a leader in the AI space. Alphabet has long been regarded as one of the most innovative tech companies, working on everything -- from self-driving vehicles to quantum computing. But AI has hit hard and fast, forcing tech companies to play catch-up. It's also difficult for investors to determine what inning of the game we are in and how much the technology can actually disrupt society as we know it. Earlier this year, the company faced several threats. The first stemmed from a very consequential DOJ lawsuit that alleged Google employed monopolistic practices in digital advertising and search, unfairly excluding competition. Keep in mind that over half of Alphabet's revenue comes from its Google Search & Other business division. A federal judge sided with the DOJ, which then requested that the judge order Alphabet to divest its Google Chrome business, a significant component of the company's search business. Interestingly, the judge did not force Google to divest Chrome, specifically citing competition from AI chatbots like ChatGPT and Perplexity, which may no longer make Google a monopoly in the search space. However, Google appears to have addressed many of these concerns. Its AI Overview summaries, which appear at the top of most Google Search queries and are powered by the company's Gemini AI model, have impressed investors. Billionaire Bill Ackman's fund, Pershing Square Capital Management, which owns a significant stake in Alphabet, applauded AI Overviews in a letter to shareholders in August, stating that the feature has resulted "in users asking more detailed questions, clicking through at higher rates and searching with greater frequency." Following the success of Overviews, Google launched AI Mode, an integrated feature within the search engine, designed to rival chatbots like ChatGPT. Alphabet's stock also rose after the company announced it is rolling out its new AI model, Gemini 3, which is expected to provide enhanced answers to more complex questions, requiring less user prompting. Analysts at HSBC stated in a research report released in October that they expect innovations like this to enable Google to maintain its dominant 90% market share in the traditional search market. Recently, The Information reported that Google has begun approaching other hyperscalers, such as Meta Platforms, to sell its own in-house, specialized chips that hyperscalers can use in their data centers. The news sent the stocks of other chipmakers, such as Nvidia, down abruptly, as investors feared that Google could pose a significant threat in the space. Google's custom chips, called Tensor Processing Units (TPUs), are better suited for training large language models on specific tasks, while Nvidia's graphics processing units (GPUs) are designed for broader-purpose training. Even so, The Information reported that Google's TPUs could potentially target up to 10% of Nvidia's business. Alphabet is a perfect example of how quickly things change in the AI race. Earlier this year, investors expressed concerns about Alphabet's ability to compete in certain areas of AI. Now, Google appears to be firing on all cylinders. Not only does it appear poised to maintain its dominance in the search space, but the integration of AI mode into the search engine could also prove to be a powerful enough combination to ward off threats from the likes of ChatGPT. The emergence of its chip business could also be something to get excited about. In addition, Google is a leader in many other tech and AI subsectors, including content through YouTube, cloud services via Google Cloud, generative AI through its autonomous driving division, Waymo, and an impressive quantum computing division. For investors seeking exposure to AI, investing in a company like Google is safer than investing in a pure-play AI stock because the company has a diverse portfolio of businesses that are leaders and have strong growth runways ahead of them.