Last week did not go well for Alphabet Inc – its stock price fell from $ 108.17 on 8th February to $95.01 on 10th February i.e. a fall of around 12% (including a 7% drop on Wednesday, 8th alone). But trouble has been brewing for Google for a few weeks now.
Dark clouds appearing on the horizon
Google has been an early investor in AI technology over the years – it is said to have invested over $ 120 billion since 2016, alongside other innovations in cloud computing. Yet when OpenAI’s ChatGPT hit the market on 30th November 2022, the Google juggernaut came across as someone pretty late to perhaps the biggest party of the 2020’s. People suddenly started speculating on the future of Google for the following reasons –
- Google searches result in a result page that has multiple answers to the same query, whereas ChatGPT provides a comprehensive answer directly to the query itself based on Natural Language Processing software or NLP. Therefore, it saves time and effort for users who do not have to sift through multiple pages anymore. Essentially, ChatGPT was giving the final value that Google bots were supposed to give to the user, directly.
- Even more surprisingly, ChatGPT could do something that Google could not – i.e. generate content tweaked to serve even the minutest of subjective instructions e.g. particular tones, emotions and other requirements, including coding.
- ChatGPT saw a massive increase in its usage in geometric rates, reaching a million users in 5 days. Therefore, it is expected that it will soon be taking away a large share of the Google searches in a matter of a few months.This further means that not only ad revenue is going to grow, but overall financial and digital clout of OpenAI is going to grow massively, giving them the capital and user base to introduce more advanced products, eventually leading to a switch en masse of users from Google to ChatGPT in a matter of a few months. The owners of ChatGPT themselves expect a revenue of $ 1 billion by 2024.
- While Google or Alphabet have an outstanding team, their recent large scale layoffs suggest they had been harbouring internal inefficiencies. Their SEO principles had been dicey for a while now, giving out mixed signals on how the Google SERP rankings work. On the other hand, ChatGPT led by Sam Altman (CEO of OpenAI), is backed by big names in the industry such as Microsoft, Elon Musk and Reid Hoffman (Microsoft, Linkedin co-founder).
In other words, the world was already quite wary of the future of Google Chrome as a product and consequently, Alphabet as a company. The till-now suppressed competition suddenly turned into an excruciating race to build AI chatbots as Microsoft launched a new version of AI-powered Bing search engine while Baidu claimed that it is going to launch its own AI-powered chatbot ERNIE-bot in March.
The incumbent decided to put up a fight
Under pressure, Google decided that it needs to speed up to overtake its competitors – it launched Bard, Google’s own AI chatbot powered by its large language model named LaMDA i.e. Language Model for Dialogue Applications). Things seemed in control, after all Google has been one of the largest tech giants for a while now with enormous experience in AI tools.
But then, tragedy struck – a terrible faux pas occurred on the part of Google.
Reuters reported an ad published by Alphabet on Twitter that included a GIF on Bard. In that ad, Bard mistakenly answered that the NASA James Webb Space Telescope had been used to take the first picture of a planet outside the earth’s solar system. However, it was confirmed by NASA later that it was the European Southern Observatory’s Very Large Telescope that had taken the first pictures of exoplanets in 2004.
This mistake suddenly gained traction and caused the aforementioned drop in the Google share price. Even the launch event of Bard, which otherwise went smoothly and highlighted not just Bard but also some of the other improvements made in Google Maps and Google Lens, failed to turn the tide. The event happened one day after Microsoft held its own event on the new conversational search result capabilities of Bing.
As usual, ‘experts’ feared this was a symptom of a larger market sentiment that has built up against Google in the last couple of months.
Is it an overreaction?
Bing still remains a distant second to Google in terms of search engine numbers and effectiveness. Google’s cloud platform is still one the most widely used Saas in the world that connects to email, Youtube etc. thus enabling authentication as a service as well for numerous other platforms. Google itself has been a long time player in AI software – this means it has the right team of engineers and product managers that know the ins and outs of this business. They may have underestimated their opponent, but the recent scare of losing their domination, coupled with the layoffs is only going to harden their will to outcompete against all odds.
On the other hand, OpenAI itself is seeing seething competition in its domain already. Its frequent crashes and introduction of a paid version has allowed other free tools using similar technology to spring up. Its failure to give adequate ChatGPT services is a sign of its mismanagement and lack of vision, preparation and resources. Its software (both ChatGPT and Dall.E2) is being imitated by several other software companies to produce similar products that can start giving it competition already.
Finally, ChatGPT, a chatbot that requires specific, well defined questions, cannot be a replacement for Google search which can act on mere keywords. Not to mention, OpenAI recently was valued at $20 billion – impressive but nothing compared to Alphabet’s market cap of $ 1.21 trillion!
Way forward for investors
The recent drop might just be an inroad that can be made by investors to buy the dip and profit off the coming AI revolution. A high-powered, resource-rich, leaner Google with a wounded pride may not be too bad of an investment. Short term losses do not necessarily indicate long term failure. If Bing can survive for years in obscurity, only to pounce back and threaten everyone, a shaken Google stock can surely overcome short term market sentiments.
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Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.