Microsoft sees AI reshaping search as Google calms investors

(Bloomberg) – Google and Microsoft Corp. of Alphabet Inc., whose quarterly earnings were each boosted by their established research and cloud computing businesses, used their time with investors to emphasize the next step: artificial intelligence.

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In their respective earnings calls on Tuesday, the tech giants, which are becoming rivals in the competition for the future of research, offered starkly different assessments of the extent of the disruption that awaits the market. Google executives encouraged investors to trust the company’s long track record as the world’s leading search engine, and touted AI as another shift in its ever-evolving business. Microsoft has suggested that something far more dramatic is afoot.

Investors seemed to like Microsoft’s thesis better, sending its shares soaring as much as 7.7% in premarket trading before the New York stock exchanges opened, while Alphabet rose less than 2%.

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Until recently, Google was considered nearly invincible in the online search market, which it dominates worldwide. That changed with the debut of OpenAI’s hugely popular chatbot, ChatGPT. Microsoft has started integrating OpenAI’s technology into its Bing search engine, and the partnership has increased pressure on Google to reinvent its core search business to enable more conversational exchanges enabled by AI. generative.

Speaking to analysts, Alphabet CEO Sundar Pichai pointed out that Google is investing heavily in AI, but he downplayed what the technology would mean for the search advertising industry, which remains the cornerstone of the industry. the company. He said he is optimistic that users will continue to appreciate online advertising even if their searches return a summary consisting of a large language pattern, rather than the familiar list of links that Google has long provided.

“Over the years, we have gone through many, many changes in research,” Pichai said. “And as we’ve evolved search, I think we’ve always had a strong, grounded approach to how we evolve ads as well.”

Still, Microsoft CEO Satya Nadella suggested his company was a formidable challenger. He said app installs had quadrupled since the AI-powered Bing launched in February. He added that Bing had taken market share in the United States during the quarter, without offering specific measures.

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“We look forward to continuing this journey in what is a generational shift in the biggest category of software – search,” Nadella said on the company’s earnings call.

Billions of dollars in revenue could be up for grabs even with relatively small changes in market share. But in the last quarter, at least, Google’s search business appeared to weather increased competitive threats and a broader downturn in the digital advertising market. The company’s revenue from research and related activities reached nearly $40.4 billion in the period ended March 31, beating analysts’ estimates.

As Google moves to integrate generative AI into search, Pichai said the company will leverage its institutional insights. “We will be guided by data and years of experience about what people want and our high standards of quality,” Pichai said. “And we’ll test and iterate as we go, because we know billions of people trust Google to deliver the right information.”

Still, the company has good reason to be concerned, said Insider Intelligence analyst Max Willens.

“Google’s core business faces the most serious challenges it has seen in some time,” Willens wrote in a note.

Read more: Alphabet shares rise on battered revenue as ad sales recover

Google’s partnerships with Android phone makers represent another opportunity for Microsoft to gain traction. Yet here, too, Pichai suggested that Google’s long track record would win out.

“When we work with our partners, we work hard to create a win-win experience,” Pichai said. “And ultimately partners end up choosing us because that’s what their users want.”

(Updates with pre-market exchanges in third paragraph)

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