The Google Cloud Next 2024 event began yesterday in Las Vegas and will run through April 11. The company made several key announcements at the event including an artificial intelligence (AI) chip that could potentially rival those of Nvidia. Here are some of the key takeaways from the event.

Google announced a custom-built Arm-based server chip and said that the new central processor unit – which would make cloud computing more affordable – would be available later in 2024. The processor, dubbed Axion, would mark Google’s entry into the extremely attractive market, joining ranks with the likes of Microsoft and Amazon.

Google said that Axion would offer 30% better performance than other Arm-based processors competitors. The company also said (albeit sans any proof to back up its claims) that it would offer up to 50% better performance than comparable X86-based instances.

Google Looks to Rival Nvidia with Its AI Chips

Google launched its AI chip, the Cloud TPU v5p, last year in December. It says that the tensor processing unit is now equipped to train large language models (LLMs) roughly three times faster than the previous avatar Google’s TPU v4.

Alphabet’s CEO Sundar Pichai said, “Now in their fifth generation, these advancements [to Google’s TPUs] have helped customers train and serve cutting edge language models.”

Notably, the demand for AI chips has skyrocketed and so have Nvidia’s revenues because it is the key supplier of these chips. It got in the game early, building off of its existing consumer GPU tech, with such advanced products that it stands alone in the industry. The company is expected to report revenues in excess of $100 billion this fiscal year which would mean a 10-fold increase from the fiscal 2020.

An important factor here is that the top semiconductor chip manufacturing company in the world, TSMC, has its factories booked for years in advance by Nvidia, Intel, and others. Because TSMC is essentially the only company able to manufacture the advanced chips required for flagship AI hardware, it would be extraordinarily difficult to challenge Nvidia’s dominance. But Google’s answer is based on a different architecture that could be made elsewhere, potentially giving them a leg up on other competitors aside from Nvidia.

Everything Comes Down to the Cloud and AI

As for Alphabet, it is now banking on other segments especially the cloud to revive its fortunes. While the cloud segment accounts for only about 11% of Alphabet’s total revenues, its sales are rising in double digits while the company’s core advertising business has sagged.

Google’s lead in online search is also under threat as more users pivot to ChatGPT which many see as a major risk for Google.

Google’s Bard had a disastrous debut last year after it provided a factually incorrect answer to “What new discoveries from the James Webb Space Telescope can I tell my 9 year old about?” Even the rebranded Gemini has been far from perfect. It often returned bizarre racist or historically inaccurate answers and even refused to generate white people.

Google is meanwhile doubling down its AI efforts and has made several key announcements in that regard. It updated the Gemini 1.5 Pro with audio processing capabilities and said, “This provides users with seamless cross-modal analysis, providing insights across text, images, videos, and audio.”

Gemini 1.5, which is available for public viewing, also provides “high-quality transcription and can be used to search audio and video content, such as using it to search, analyze, and answer questions across earnings calls or investor meetings,” said Google.

Google Announces a New Workspace App

Google announced a new workspace app named Vids which is an AI-powered video creation app and would be available in June. In its blog, Google said that Vids “can generate a storyboard that you can easily edit, and after choosing a style, it pieces together your first draft with suggested scenes from stock videos, images and background music.”

The company made several other announcements about its Workspace suite of products. These include

  • Translate for Me option in Meet that would automatically detect and translate captions into the user’s preferred language.
  • AI security add-on that would allow the IT teams to automatically identify, classify, and protect sensitive files across the organization in Google Drive. The plan is available for select Workspace customers and would cost $10 per month.
  • Enhanced features in Gmail that would let use one’s voice to send emails from the Gmail app. The new feature would, however, be available only for Google One AI Premium subscribers and Gemini Enterprise and Gemini Business customers.
  • New Sheet and Docs features that would help organize data in a sleek, updated design.

Other Key Announcements At the Event

At the event, Google announced multiple open-source tools most of which are aimed at generative AI projects. It also announced an upgrade to its Imagen 2, whose previous avatar had failed to live up to expectations. The update brings “text-to-live images” functionality and Imagen 2 can now create small videos with text prompts.

Google also announced Gemini for Google Cloud which will be “a new generation of AI assistants for developers, Google Cloud services, and applications.” It also announced Gemini Code Assist which is an AI-powered assistance that would let developers build applications quickly with better quality in popular code editors.

Alphabet Stock Surged to Record Highs Yesterday

Markets seem impressed with Google’s Cloud Next 2024 event and Alphabet stock hit a new all-time high yesterday. Notably, Alphabet’s returns have trailed that of the “Magnificent 7” and it is the worst performing among the lot over the last decade.

A section of the market has been concerned that Alphabet is losing out to Microsoft in the AI race and chatbots like ChatGPT are an existential threat to its search business. However, the announcements at the event show that Google is very much in the race and is also looking to further monetize the AI opportunity by offering premium paid products based on AI. The new AI chip is another key opportunity for Google.

Notably, with a next 12 months (NTM) PE multiple of 23x, Alphabet is starting to fall behind its peers, especially Microsoft, Apple, and Nvidia. Its market cap is still below $2 trillion even as Nvidia, which joined the trillion-dollar club last year only, now commands a market cap of over $2 trillion.

As AI becomes more mainstream and Google starts monetizing the opportunity, it should also get some more “AI respect,” even if not to the extent that Nvidia received amid soaring AI chip sales.

A lot is riding on the event as far as Alphabet stock is concerned. As Bank of America analyst Justin Post said, “Positive commentary on advances in AI infrastructure, Gemini’s capabilities vs competitive LLMs, or traction with AI customers (after a strong 4Q vs estimates) could address some of the AI-related overhang on the stock.” The brokerage has reiterated GOOG stock as a buy amid the flurry of encouraging announcements at the event.