Google and Microsoft fight over the future of AI

Wall Street was able to breathe a sigh of relief on Tuesday as Google-parent company Alphabet (GOOGL) and Microsoft (MSFT) both beat the market’s relatively modest earnings expectations. The companies saw big boosts from their search and cloud computing businesses.

After a disastrous year for both stocks, the shares rebounded strongly in the first quarter. And so, with immediate concerns out of the way, executives at Microsoft and Alphabet focused their remarks during earnings calls on what excites them most: Artificial intelligence.

Microsoft, Google and a number of smaller rivals are in a race to integrate generative artificial intelligence technology (similar to ChatGPT) into their search functions and other applications. Both companies see it as an integral part of their future, but it was apparent on Tuesday that Microsoft and Google aren’t in agreement about what that future will look like.

Analysts have expressed worry that Google is falling behind the competition when it comes to AI innovation. In March, Google introduced an AI chatbot named Bard, which met mixed reviews. Google’s search engine has dominated the market for two decades, with Microsoft’s Bing struggling to gain market share.

But the viral success of ChatGPT, which can generate compelling written responses to user prompts, appeared to put Google on defense for the first time in years.

The opportunity

Microsoft posted quarterly net income of $18.3 billion, up 9% year-over-year, and far exceeding expectations. The company also posted sales of $52.9 billion, up 7%.

Alphabet on Tuesday reported quarterly net income of $16.4 billion, up 68% year-over-year. The company also posted sales of $65.1 billion, up 34%.

The big picture: Both companies have been investing heavily in AI research and development, hoping to gain an edge over their competitors and create new sources of revenue.

Microsoft has been developing its own generative AI system called Turing-NLG, which it claims can write code as well as natural language texts. The company has also been integrating AI into its products and services, such as Office 365, Azure, LinkedIn and Bing.

Google has been working on its own AI projects, such as Meena, a chatbot that can converse about anything. LaMDA, a language model that can generate natural-sounding responses to open-ended questions. The company has also been using AI to improve its core products. Company also used services, such as Search, YouTube, Gmail and Google Assistant.

The challenge

Both companies face significant challenges and risks as they pursue their AI ambitions.

One challenge is to ensure that their AI systems are safe, reliable and ethical. Both companies have faced controversies over their AI research and practices such as the firing of prominent. AI ethicists at Google and the potential military use of Microsoft’s AI technology.

Another challenge is to balance their AI investments with their existing businesses and customers. Both companies have to deal with regulatory scrutiny over their market dominance and data privacy practices. They also have to compete with other tech giants such as Amazon (AMZN), Apple (AAPL) and Facebook (FB). As well as emerging players such as OpenAI.

The opportunity

Despite the challenges, both companies see huge opportunities in AI for themselves and for society.

Microsoft CEO Satya Nadella said on Tuesday that AI is “the defining technology of our time” that can empower people and organizations to achieve more.

Google CEO Sundar Pichai said on Tuesday that AI is “one of the most profound things we are working on as humanity” that can solve some of the world’s biggest problems.

Both companies also said they are committed to making their AI technology more accessible and beneficial for everyone.