Microsoft's recent strong quarterly report and advancements in artificial intelligence have put the company in a leading position against rival Alphabet, parent company of Google. After beating Google to the AI punch with a ChatGPT integration and a $10 billion investment into OpenAI, Microsoft is now setting its sights on Google's long-owned turf: search.
During the earnings call, Microsoft Chairman and CEO Satya Nadella expressed the company's eagerness to continue this journey in what he believes is a generational shift in the largest software category, search. Microsoft flaunted a 10% revenue growth in search, citing share gains for Bing and its Edge browser, a direct competitor to Google Chrome.
Bing now boasts more than 100 million daily active users, while daily installs of the Bing mobile app have grown four times since the launch of the AI-powered version of the product two months ago. On the other hand, Google called its search revenue "resilient" and saw only 2% growth in the category.
According to Baird technology strategist Ted Mortonson, "Microsoft is holding a lot of the cards right now." Microsoft's shares rose as much as 8.5% in intraday trading, while Alphabet's shares ticked slightly above the flat line in midday trading.
Guggenheim analyst John DiFucci, who has a Sell rating on Microsoft, points out that Bing's growth in the quarter was noteworthy. Bing's growth in the quarter reversed a five-quarter downward trend, according to DiFucci. Among other catalysts, Microsoft's position in AI pushed DiFucci's price target on Microsoft up to $232 from $212.
While ChatGPT has been seen as the consumer-facing leader in the AI arms race, Microsoft believes its ability to tie the new technology to its Azure platform could be crucial as well. Microsoft now has ten times more Azure OpenAI service customers than last quarter, with more than 2,500 Azure OpenAI service customers, per the company's earnings call. Azure and other cloud services revenue grew 27% in the third quarter compared to the same period a year prior. Citi estimates that AI could amount to one point of Azure's growth in the next quarter.
Microsoft's position in AI, coupled with Bing's recent growth, suggests that Microsoft is almost like the technology Death Star. Microsoft has incredible management that executes and has a huge investment in OpenAI, powered by Nvidia and sitting on Azure, giving it a significant initial advantage in this next war.
In conclusion, the environment in search is changing, and Microsoft is positioning itself as a strong contender against Google in this space. With Microsoft's position in AI and Bing's recent growth, the future of search will be an exciting one to watch as the two tech giants continue to battle it out.
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