OpenAI Strikes Major Deal with Google Cloud (GOOGL) despite AI Rivalry

AI firm OpenAI is planning to use Google Cloud, a service from tech giant Alphabet (GOOGL), in order to handle its growing need for computing power, according to three sources who spoke to Reuters. Indeed, the deal was finalized in May, after months of negotiations. Although OpenAI and Google compete against each other in the AI space, the move shows how huge computing needs are changing the industry. This also marks another step by OpenAI to rely less on Microsoft (MSFT), which was its main cloud provider until earlier this year. As a result, Google Cloud will now help OpenAI run and train its AI models.

For Google, getting OpenAI as a customer is a big win for its $43 billion cloud business, which made up 12% of Alphabet’s 2024 revenue. In addition, Google has started offering its special AI chips, called TPUs, to outside companies. These chips were once only used internally, but now power services for Apple (AAPL), Anthropic, and Safe Superintelligence. However, the OpenAI deal adds pressure since Google’s DeepMind unit also competes with OpenAI, and Google is already short on computing power, according to CFO Anat Ashkenazi.

Nevertheless, although ChatGPT is more popular than Google’s chatbot, CEO Sundar Pichai says he’s not worried about OpenAI taking over Google’s core business. Still, it is worth noting that OpenAI continues to grow at an incredible pace and recently announced that it was generating $10 billion in annual recurring revenue. Interestingly, this has led OpenAI to also work with SoftBank (SFTBY), Oracle (ORCL), and CoreWeave (CRWV) in order to support its growth.

Is Google Stock a Good Buy?

Turning to Wall Street, analysts have a Strong Buy consensus rating on GOOGL stock based on 29 Buys and nine Holds assigned in the past three months. Furthermore, the average GOOGL price target of $199.11 per share implies 10.1% upside potential from current levels.

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