Long before OpenAI launched ChatGPT in 2022, igniting the tech industry's AI wars, Google had been working to incorporate artificial intelligence into its long-term strategy. The big question now is how much impact will it have on its parent Alphabet's stock.
That includes integrating AI into its consumer-facing products such as Google Docs and Gmail and machine learning into its advertising products, which account for most of Google's and Alphabet's revenue. Google Cloud is also a core component of its AI strategy.
Google Stock: AI Offensive
Last week Alphabet Chief Executive Sundar Pichai announced at its I/O developer conference that it was adding AI-generated answers to its flagship search product.
"I'm excited to announce that we will begin launching this fully revamped experience, 'AI overviews,' to everyone in the U.S. this week," Pichai said at the May 14 event.
Evelyn Mitchell-Wolf, a senior digital advertising and media Analyst at eMarketer, said that "As consumers and businesses adopt and become more comfortable with AI, there will be more opportunities to upsell those customers so that they are using more advanced, more expensive models."
AI In Google Search
But Mitchell-Wolf says there are "more questions than answers at this point" on Google's use of AI in search.
This is leaving some on Wall Street searching for clarity, said Eric Savitz who covers Google for Barron's.
"They think that they can overcome this issue," he told Investor's Business Daily. "I would note that in their March quarter earnings, there were no signs of problems. They had better-than-expected results in Google search and in YouTube search and YouTube advertising. So it hasn't been a problem yet."
Performance Max
Mitchell-Wolf said Google's AI-powered advertising product, Performance Max, has been readily adopted. To use the tool, advertisers input their goals and their budgets, and Google does the rest.
But Performance Max users have had some concerns.
"Advertisers are not thrilled with the lack of control and the lack of granular reporting that comes with Performance Max. But it does keep growing because advertisers do feel like it is performing well, even if they can't see the details of how it's performing," Mitchell-Wolf said.
Microsoft and Amazon also offer AI-powered advertising applications. Microsoft, though, is much smaller than Google, particularly in search advertising. Amazon has a growing influence, but more so as a retail media player. Google operates primarily in the search space and more broadly in digital advertising.
Gemini
Then there's one of Google's big AI initiatives, the Gemini chatbot, originally called Bard, which competes with ChatGPT, Anthropic's Claude and the new META AI, which is used by Meta Platforms' Facebook. Google recently began charging about $20 a month for a Gemini Advanced subscription.
Mitchell-Wolf said businesses seem to prefer ChatGPT over Gemini: "I think that Google's being later out of the gate with that product did hurt it in that respect. But performance-wise, I'm hearing that Gemini is pretty solid. A few stumbles aside."
Google Stock: Risks With AI
Still, AI technology can be tricky.
Tools are known to offer inaccurate answers to queries, which can pose risks for businesses using them.
In February, Google came under fire after Gemini offered what the company acknowledged were "inaccuracies in some historical image generation depictions." The AI tool offered query results that portrayed America's Founding Fathers as well as Nazi-era German soldiers as people of color. The tech giant scrambled to address the issue, apologizing for "missing the mark."
"There's a creative element, and that results in unpredictability," Savitz of Barron's said. "You might get an answer that seems inappropriate or dangerous or just flat out in error, this concept (the tech industry calls) hallucination. Sometimes the software seems to be making things up. And honestly, people don't entirely always understand the processes that they've created. And that's kind of a little scary that no one can really explain it."
Google's Advantage
But Google does have a competitive advantage because the tech giant controls its own AI infrastructure, Savitz added.
"Some of these other AI software startups that are doing large language models don't have their own infrastructure," he said. "So they're relying on Amazon or Microsoft, or Oracle, or Google. They have to pay them for compute time, which is very expensive."
Another Google advantage is the tech giant's access to massive data. "Google has more data than anybody, right?" Savitz said. "This is like the big kids' table. You can't do this on a wing and a prayer."
Massive AI Spending
Tech giants led by Microsoft, Amazon, Meta and Google are expected to spend some $200 billion this year on more powerful data centers to run AI workloads.
Google CEO Sundar Pichai said over 70% of generative AI startups rely on Google's cloud infrastructure and AI capabilities. The company has even designed its own AI chip.
Google hopes to become the dominant force behind creating a frictionless pathway to fully experience AI, in the same way it became a trailblazer with search.
Google Stock And The AI Ecosystem
However, the rise of AI involves an ecosystem-wide change. The race to dominate that ecosystem will take time and a lot of effort, Mitchell-Wolf said.
Tech Giants are placing big bets. And that includes Apple, which is widely seen as being late to the AI party and which is expected to make a big AI announcement at its developers conference in June.
The stakes are high. Savitz estimates the technology will be a trillion-dollar market by 2030.
"To me, this feels a little like the early days of the Internet or the early days of cloud computing or the early days of smartphones," he said. "If you made a conscious decision not to participate in this market as a technology company, you're making a very contrarian bet that the rest of the world is wrong. I don't see anybody doing that."
So when it comes to the AI wars, where does Google fall?
Mitchell-Wolf sees Google as a front-runner in this race despite "a few very public stumbles." The company has "great leaders working on this day and night trying to make sure that Google stays in at least one of the leading positions."
