Why Alphabet Stock Just Popped

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock jumped nearly 3% earlier in the day before retreating to about a 1.3% gain as of 2 p.m. ET Tuesday. It's not a huge increase -- but then again, you don't expect $2.2 trillion market cap companies to make huge increases in percentage terms all that often.

What's interesting about the gain, though, is what caused it.

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According to a Reuters exclusive report this morning, artificial intelligence (AI) leader OpenAI is planning to utilize Alphabet's Google cloud service to help carry the load of its AI operations.

Image source: Getty Images.

OpenAI and Google -- better together?

Reuters calls this development "surprising" given that OpenAI's ChatGPT service famously competes with Google's own Gemini. And yet, it appears this deal got done regardless. The partnership was in fact finalized last month.

So why is OpenAI teaming up with the competition? Firstly, to diversify the company away from reliance on Microsoft data farms. (OpenAI is also partnering with SoftBank and Oracle on Project Stargate for similar reasons). Second, to support OpenAI's rapid growth in artificial intelligence services.

What does this mean for Alphabet stock?

On the one hand, that sounds like good news for OpenAI, and conversely bad news for Google's Gemini, if ChatGPT is growing fast enough to make OpenAI overlook concerns about handing cash to a competitor. On the other hand, though, OpenAI is giving cash to a competitor here. This will fuel Gemini's own rise, and highlights OpenAI's dependence on other companies -- even competing companies -- to support its own growth.

Commenting on the news, Scotiabank analysts agreed this is "a big win for Google's cloud unit," which did $43 billion in sales last year, and will now do even more in 2025, thanks to OpenAI. I agree.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Oracle. The Motley Fool recommends Bank Of Nova Scotia and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.