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Alphabet (Nasdaq: GOOG) stock rose 3% on Tuesday on a report that it had signed a major deal with Open AI.

According to Reuters, citing three sources, OpenAI will partner with Google, which is owned by Alphabet, to help train and deploy its AI models.

While Alphabet officials have not confirmed this, the story got picked up throughout the media landscape and jolted Alphabet’s stock price higher.

It’s a big deal, if true, because OpenAI is the AI leader with more than 2.5 billion monthly visitors to its ChatGPT. Also, it would be significant because OpenAI has long had a partnership with Google’s major cloud rival Microsoft.

While that partnership remains, OpenAI is apparently diversifying beyond Microsoft to meet the high and growing demand for computing capacity, according to Reuters.

It’s also an interesting partnership, because Open AI’s ChatGPT search is considered a major rival to Google’s dominance in the traditional search business.

Analysts at Wells Fargo released a report last week saying ChatGPT could have 30% of the search market by 2030, up from 8% now, and some $100 billion in yearly ad revenue.

Big win for Google, but …

Analysts at Scotiabank were surprised by the move, considering the above-mentioned dynamics.

“The deal … underscores the fact that the two are willing to overlook heavy competition between them to meet the massive computing demands. Ultimately, we view this as a big win for Google’s cloud unit, but … there are continued worries that ChatGPT is becoming an incrementally larger threat to Google’s search dominance,” the analysts wrote in a research note Tuesday, reported CNBC.

Alphabet stock was rising on Tuesday, up about 3% at its peak, but falling back to a roughly 1.5% gain as of mid-afternoon eastern time.

It is too early to gauge the long-term machinations of how search will play out. Alphabet is certainly aware of the ChatGPT threat, so perhaps this is part of a larger longer term strategy. Bottom line: it is just impossible to know right now.

Right now, Alphabet stock is about as cheap as it’s been in a long time, trading at 19 times earnings. Analysts have established a median price target of $200, which would suggest a 12% return over the current share price. It looks like a relative bargain right now.

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