The Latest AI News Doesn’t Change the GOOG Stock Story
After rallying last month, Google parent Alphabet (NASDAQ:GOOG, GOOGL) has continued to hold up thus far in April. Other tech stocks have delivered a similar performance, but it may be a few company-related developments that are keeping GOOG stock on an upwards trajectory.
In the past week, the tech giant has made two announcements related to how it plans to capitalize on the artificial intelligence (or AI) megatrend.
To some, these developments may signal higher prices ahead. Coupled with a tech sector rebound, it may seem possible that AI could result in an even greater earnings comeback over the next year.
A rebound for Alphabet’s overall business may arrive on or ahead of schedule. However, don’t assume that the latest AI-related news with the FAANG component is a bona fide game changer. These developments do little to improve the company’s AI-related prospects.
GOOG Stock and the Latest AI Headlines
On April 5, Alphabet’s Google subsidiary released details about the TPU v4, one of its AI supercomputers. Namely, the company touted that this system, which uses proprietary chips, beats systems run using Nvidia’s (NASDAQ:NVDA) A100 chips in terms of computing speed.
On April 6, in an interview with the Wall Street Journal, Alphabet CEO Sundar Pichai stated that the company plans to eventually integrate chat AI features into its flagship Google search engine. As you may recall, Microsoft (NASDAQ:MSFT) beat Alphabet to the chase in this area by quickly integrating chat AI technology from ChatGPT developer OpenAI into its Bing search engine back in February.
With both these developments, it’s not a surprise that GOOG stock has moved slightly higher. In fact, it’s a bit of a surprise that GOOG hasn’t rallied on this news. Some of the headlines behind these developments have implied that Alphabet is beating Nvidia in the area of AI chips and that the company is playing serious catch-up with Microsoft in generative AI search.
Then again, maybe it makes sense that this news has solicited a modestly positive reaction.
Still an Underdog in the AI Wars
You don’t have to dig deep to figure out that the latest AI-related headlines with GOOG stock are more “nothing burger” than needle-mover. While the aforementioned news about the TPU v4 isn’t a bad thing, stating that “Google is beating Nvidia” is a bit of an exaggeration.
As critics are quick to point out, while the company’s in-house graphic processing units (or GPUs) outperform the A100 GPU, Nvidia now has a new AI GPU (the H100), which has exponentially greater computing power than the A100, not to mention Google’s chips. In short, the company is bragging that its system can beat yesterday’s technology, not today’s technology.
When it comes to the integration of generative AI features into Google search, an important caveat is that, while stating a launch is forthcoming, Pichai did not offer a specific launch date.
After the poorly-received public unveiling of the AI platform that will provide these features (Bard), the company may be looking to fine-tune it before it goes live on its most widely-used online property. It may be a while before this technology starts to make a difference with regard to Alphabet’s overall financial performance.
Not only will it take time for generative AI to have an impact on the performance of Google Search. It’s not certain that integrating this technology will improve the profitability of the platform.
At best, it may merely enable Google to minimize market share losses to Bing. At worst, between increased competition bringing down search ad rates, and generative AI’s computing requirements raising search costs, this technological breakthrough could be detrimental to the profit margins of Alphabet’s main cash cow.
Don’t get me wrong. GOOG may have room to head higher over the next twelve months. Again, the economic environment could improve for tech. Coupled with Alphabet’s aggressive cost-cutting measures, this could result in a big earnings rebound.
However, when it comes to the longer-term bull case, which hinges more heavily on AI, a lot remains up in the air for GOOG stock.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.