Alphabet Inc‘s (NASDAQ:GOOGL, NASDAQ:GOOG) Google Pixel announcement told the public something tech reporters have known for some time: The emerging interface every Big Tech company wants to own is voice, as well as the technology behind voice, artificial intelligence. In that version of the “great game,” Amazon.com, Inc. (NASDAQ:AMZN) and Amazon stock holders are winning.
That’s because the Amazon Echo has been around for almost two years while Google’s entry in this race hasn’t even put its bib on yet.
Voice interfaces like Amazon’s Alexa (which runs the Echo), Google Assistant or Siri from Apple Inc. (NASDAQ:AAPL) are the next big thing because they require immense computing power to be useful, not just in the client but also in an on-demand cloud.
It’s vital that big companies compete in this area, even absent proven consumer demand. When it comes to a consumer-driven Internet of Things, voice is the obvious interface.
Why Amazon Is Hot
The realization that this new tech battlefield exists is partially powering AMZN to new highs, as nothing since Amazon Web Services has became profitable. The shares have gained 55% in value over just the past year, putting Amazon’s market cap near $400 billion and its price-earnings multiple at 210.
As was true when Amazon was unprofitable, expectations are ahead of reality. If Amazon fails to meet expectations in any way, share value could plummet, because so much of today’s price is expectation built on hope for Alexa and what it means.
What it means, in a word, is control. It takes time to train a voice interface, but once it’s trained, your commands quickly become purchases and the interface becomes the heart of how you interact not just with technology, but with everything in your home.
That’s an enormous opportunity Amazon is uniquely positioned to capitalize on, with its store’s quick turnaround on purchases. Through Alexa, Amazon can build shopping lists and handle impulse buys. Its data on what a family has, or needs, can be aggregated to create value for both the company and its customers.
Game, set and match for the future of in-home commerce.
What Google Brings to the Party
Google may be an underdog in this new great game, but it still has enormous strengths.
Alphabet is still worth $150 billion more than Amazon, it has more software engineers, and it can gain what it lacks through alliances. The key product will not be the Pixel Phone, but the Google Home speaker. Google is pricing Home at $50 less than the Echo, complete with Google search capabilities that outshine those of Amazon.
Since this is a product niche that is just now moving from the hobbyist market into the early adopter space, Google has time to catch up with Amazon, using aggressive pricing and a big advertising push over the holiday season. The device is being made as cheap and attractive as possible to deflect from the client software’s relative lack of sophistication and user experience.
Should Google be successful — and it’s important to note that Pixel and Home come from the main company — not one of its “other bets” units, you can get in on the ground floor today, with the stock having a P/E of just 30. Shares are poised to zoom on revenue growth, the income statement can stand a little margin compression and it’s possible that many millions of these units could fly off virtual shelves in the current quarter.
The Lesson for Investors Is to Buy
I currently own both of these stocks, but Amazon’s gains have made that a much bigger part of my portfolio than Alphabet is. For me, picking up 10 to 20 shares of Alphabet would be a good defensive move, because the stock is currently priced based solely on its search engine revenue.
For investors who own neither, you should know that Google is the underdog in this fight and Amazon is fully priced. That said, you can’t go wrong with either.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in GOOGL, AMZN and AAPL.
