Morgan Stanley says Microsoft particularly well positioned as the leader in AI Shares of Alphabet (GOOGL) are in the spotlight on Monday morning following a news report saying Google is racing to build an all-new search engine powered by artificial intelligence after learning Samsung (SSNLF) was considering replacing Google's search offering with Microsoft’s (MSFT) Bing.
AI RACE: After learning Samsung was considering replacing Google with Microsoft's Bing as the default search engine on its devices back in March, Google began to "panic," Nico Grant of The New York Times reports, citing an internal message. In response to this threat from AI competitors, Google is racing to build an all-new search engine powered by the technology while also upgrading its existing search engine with AI features, internal documents reviewed by The Times said.
The new features, under the project name Magi, are being created by designers, engineers and executives working in so-called sprint rooms to tweak and test the latest versions, the publication says. The new search engine would offer users a far more personalized experience than the company’s current service, attempting to anticipate users’ needs.
AI LEADERSHIP: At the depth of cyclical impacts and ahead of a transformation secular shit, for which Microsoft consistently screen as best positioned to gain market share, Morgan Stanley sees a buying opportunity. In a research note ahead of quarterly results, the firm says that a line of sight to teens EPS growth by Q4 should push shares higher.
As the market debate on the duration and degree of cloud optimization continues, Morgan Stanley's Global Technology teams published insights from a propriety AlphaWise survey pointing to slightly longer digestion period than expected, but a significantly higher degree of cloud adoption longer-term, leading to a larger total addressable market, or TAM. Specifically for Microsoft, the survey showed Microsoft as best positioned to gain market share of IT budgets overall, while Microsoft and Google are expected to be “the major beneficiaries as it relates to AI.”
The firm believes that Microsoft is increasingly well positioned not only for broad secular trends in technology, but also particularly well positioned as the leader in AI. Morgan Stanley has an Overweight rating on Microsoft’s shares with a price target of $307.
IMPACT OF AI ACCELERATION: In an interview with CBS’ 60 Minutes that aired Sunday, Google CEO Sundar Pichai warned society to brace for the impact of AI acceleration, which he believes will impact “every product of every company.” “We need to adapt as a society for it,” Pichai said, pointing out that jobs which could be disrupted by AI include “knowledge workers” such as writers, accountants, architects, and even software engineers.
“Of the AI issues we talked about, the most mysterious is called emergent properties. Some AI systems are teaching themselves skills that they weren't expected to have. How this happens is not well understood. For example, one Google AI program adapted, on its own, after it was prompted in the language of Bangladesh, which it was not trained to know,” Sundar said.
PRICE ACTION: In Monday morning trading, shares of Alphabet have dropped over 3% to $105.22, while Microsoft’s stock has gained about 1% to $287.78.
