Morgan Stanley views Google Cloud-OpenAI partnership as ‘important’

Morgan Stanley analyst Brian Nowak notes that Google Cloud (GOOGL) and OpenAI reportedly finalized an agreement in May for OpenAI to use Google Cloud to add additional compute capacity. If confirmed, this move comes as OpenAI continues to diversify its infrastructure base away from Microsoft (MSFT), notes the analyst, who highlights two reasons such a partnership is “important.” Adding a leading AI player as a customer is a “significant and potentially material” win for Google’s cloud business and a potential driver of acceleration for Google Cloud, the analyst tells investors. Investor debates about Google’s long-term search positioning remain front and center, but “if we assume compute capacity is going to be a competitive advantage to scaling intensive GenAI enabled products to hundreds of millions of people, do we think Google would agree to give ChatGPT access to Google Cloud if they were concerned about disruption risk to the cash cow search business?” After posing the question, the firm argues it is not likely and that Google has “better data on the health of its business than any of us do externally.” The firm maintains an Overweight rating and $185 price target on shares of Google parent Alphabet (GOOG).