I’ve never owned Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) stock. That’s strange because, like many millions of people, I use so many Alphabet-owned Google products every single day. If I’m not checking my Gmail, then I’m often looking up something on Google Search. If I’m not on YouTube, I might be driving while streaming Spotify (one of Google Cloud’s highest-profile customers).
The stock is down 36% in a little over a year. OpenAI’s ChatGPT — and specifically Microsoft‘s $10bn investment in it — has many investors nervous about Alphabet’s future. I’m not one of them. Here’s why I’m buying the shares.
Not average
First, let’s look at valuation. The stock has a price-to-earnings (P/E) ratio of 20. That’s less than the trailing-12-month average of the S&P 500. So I reckon I’m getting a wonderful company at a fair price.
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Google has over a billion users of its products and services worldwide. Yet around 46% of Google searches are looking for local information (like “near me“). Ask ChatGPT about local shops open right now and you might not get far. The chatbot’s training data only goes to 2021. That means it doesn’t ‘know’ this article exists or that Argentina won the World Cup on penalties.
That won’t be true once it’s updated, of course. But by that time, Google will probably have infused its own products with Bard, its own artificial intelligence (AI) chatbot.
Chatbot wars
There was much media hoopla earlier this month when Bard gave an incorrect answer to a question at its launch event. An impression was formed by some that bumbling Google had rushed out a sub-par product in response to the threat posed by ChatGPT. But that’s nonsense.
Google has been pioneering this technology for years. It created the ‘Transformer AI’ architecture in 2017, on which ChatGPT is built. Its AI is state-of-the-art and innovative.
If anything, Bard’s inaccurate answer only validates the company’s reason for not releasing the technology to the public sooner. It’s just not quite up to scratch yet. Like ChatGPT, it produces factual errors. There’s the potential for biases and safety issues. As OpenAI itself has acknowledged: “Internet-trained models have internet-scale biases.”
So I don’t think it was solely a case of the company being risk-averse for fear of cannibalising its own search engine business. The technology just wasn’t up to the sky-high standards expected of a Google product. But it’s not like the company is playing catch-up to the competition’s technology.
Doubt
Of course, I could be wrong. Maybe the company’s best days are behind it, and I’m walking into a value trap here. I’m comfortable taking the risk, however.
I see Alphabet stock today as the cheapest way for me to invest in advanced artificial intelligence. The search giant’s other bets on quantum computing and the like may take years to pay off (if ever). Again, that doesn’t bother me. I’m investing for the long term.
And I feel I must point out that I’ve just gone on Microsoft Bing search engine, into which ChatGPT will be integrated. I typed ‘Show me a video explaining artificial intelligence‘ into the search bar. The results page showed me multiple videos, all from Google-owned YouTube!
I doubt the company’s business model is about to be disrupted. The stock appears to be on sale and I’m buying it.
