Why Alphabet Stock Just Popped
Alphabet's stock rose nearly 3% before settling at a 1.3% gain, driven by news that OpenAI will use Google Cloud for its AI operations. This partnership, finalized last month, aims to reduce OpenAI's reliance on Microsoft and support its growth. While this is seen as beneficial for Google's cloud unit, it raises questions about the competitive dynamics between OpenAI's ChatGPT and Google's Gemini. Analysts view this as a significant win for Google, projecting increased sales for its cloud services in 2025.
Alphabet (GOOG 1.41%) (GOOGL 1.41%) stock jumped nearly 3% earlier in the day before retreating to about a 1.3% gain as of 2 p.m. ET Tuesday. It's not a huge increase -- but then again, you don't expect $2.2 trillion market cap companies to make huge increases in percentage terms all that often.
What's interesting about the gain, though, is what caused it.
According to a Reuters exclusive report this morning, artificial intelligence (AI) leader OpenAI is planning to utilize Alphabet's Google cloud service to help carry the load of its AI operations.
Image source: Getty Images.
OpenAI and Google -- better together?
Reuters calls this development "surprising" given that OpenAI's ChatGPT service famously competes with Google's own Gemini. And yet, it appears this deal got done regardless. The partnership was in fact finalized last month.
So why is OpenAI teaming up with the competition? Firstly, to diversify the company away from reliance on Microsoft data farms. (OpenAI is also partnering with SoftBank and Oracle on Project Stargate for similar reasons). Second, to support OpenAI's rapid growth in artificial intelligence services.
What does this mean for Alphabet stock?
On the one hand, that sounds like good news for OpenAI, and conversely bad news for Google's Gemini, if ChatGPT is growing fast enough to make OpenAI overlook concerns about handing cash to a competitor. On the other hand, though, OpenAI is giving cash to a competitor here. This will fuel Gemini's own rise, and highlights OpenAI's dependence on other companies -- even competing companies -- to support its own growth.
Commenting on the news, Scotiabank analysts agreed this is "a big win for Google's cloud unit," which did $43 billion in sales last year, and will now do even more in 2025, thanks to OpenAI. I agree.
