Has the AI Movement Shifted into High Gear? (And What That Means for MSFT vs GOOG)
by Mike Paulenoff
February 11, 2023 • 2:53 PM EST
Has the AI (Artificial Intelligence) movement shifted into high gear, and what to do about it?
Believe it or not, it has been 24 years since Michael Lewis penned his influential Silicon Valley missive, The New New Thing, which described the budding internet revolution.
Maybe last week we were introduced to the next New New Thing?
After last week's unveiling of MSFT's $10 billion investment in OpenAI (Chatbot) to enhance its Advanced Search Engine Bing, suddenly GOOG's dominance of the Search market could be (is?) under threat. After all, GOOG purportedly controls 93% of the search market compared with 3% for MSFT (according to Statcounter), so ANY measurable uptick in market share for Bing could translate into billions of dollars of additional revenue for MSFT.
If MSFT's threat weren't enough to pique the interest of investors, the fact that GOOG had a flawed rollout of its new AI Chatbot, Bard, last week certainly was a bad look that added fuel to the search engine fire.
This morning I got to thinking about the relationship between these two mega-caps which led me to create a longer-term Ratio Chart (the price of MSFT divided by the price of GOOG) to see the relative performance of the two names. To my surprise, the emergent picture is shocking and exciting (see below) because, in no uncertain terms, the vast multi-year base formation in the Ratio is looking like a powerful Rounded Bottom Formation that argues strongly for years of future outperformance of MSFT relative to GOOG.
This new Chatbot AI Search "arms race" between MSFT and GOOG looks to me to favor a period of significant outperformance from MSFT while GOOG finds itself on the defensive.
If you run a multi-billion dollar hedge fund, the implication from the attached chart is to establish a spread trade, long MSFT, short GOOG.
If you are mere mortals like us, then the implication is that you own MSFT and ALSO own GOOG, but less of it, such as a 2 to 1 ratio of MSFT shares to GOOG shares.
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