Alphabet Inc. Battles To Be Your AI Company

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Google - Alphabet Inc. Battles To Be Your AI Company

Source: Google

While privacy advocates whine about the huge amount of data collected by companies like Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG), the House of Google spent its I/O meeting in Mountain View demonstrating how it can make all that data useful to you.

As the amount of data it has rises exponentially, artificial intelligence (AI) representations of that data become more accurate.

This means you can ask Google Assistant to make a restaurant reservation for you, for instance, and the AI will make the call, even convincing the person taking the call it’s human.

From a financial perspective, this transforms Google. It makes Google services an immersive part of your daily life. This is going to make life a lot more interesting for competitors like Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL).

Living in Google

It is already difficult for users to live in multiple corporate ecosystems. Microsoft Corporation (NASDAQ:MSFT) is already battling Google on the role of “default” for browsing, in order to capture data, make use of it, and tie you more closely to its other products and services.

Google is now going to war with Apple, using AI in Google Android P to help you order tickets when you ask about a movie, tell you how long it will take for a Lyft to arrive, or order a pizza with the Google Assistant. The war with Apple only starts with new features that extend battery life, rejecting most calls when you put it screen-down, for instance. The aim is to control your purchasing by making it easier.

The effect is to transform corporate advertising. Building apps on Google tools now gets Starbucks Corporation (NASDAQ:SBUX)  in front of you when you’re ready for coffee, but small competitors can’t afford the development tool.

Living in Google, then, will mean living within Google’s corporate partnerships, to get the most value from its software.

Cloud Wars

Analysts are noting, correctly, that colliding more directly with cloud rivals is going to mean more competition. It’s not so much that they don’t think Google can win this competition, as it brings more uncertainty to the investment thesis.

Are you a Microsoft person, an Apple person, an Amazon person or a Google person? I’d like to be all four, but as each company brings its AI power to bear over your life, attempting to live in all four worlds, to parse your data out, means you’re getting less value in your daily life than you would if just went all-in. It’s what happens when that realization hits that analysts are now wondering about.

Until the result is clearer, Alphabet stock is going to be on sale. Google’s price-to-earnings ratio is inflated because it chose to take losses before the Trump tax cut. Its PE, adjusted for the tax cut, is 28, only slightly ahead of the general market.

This is before Google decides what to do with the over $100 billion in cash and short-term assets on its books, money it is now free to bring back and redistribute in the form of stock buybacks or dividends, or to reinvest wherever it wants. For example, if Google decides its Waymo self-driving car technology is ready for prime time, it can buy Ford Motor Company (NYSE:F) tomorrow, for cash, and not spend half of it.

Waiting on a Call

Google doesn’t like to make big acquisitions. Instead it makes small ones, as many as a dozen a year, for incremental improvements in its software.

But with the self-driving car wars getting serious, that is going to change. Waymo can get a car to drive itself, but to scale, it needs to own a car manufacturer. Watch for that call.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, F, and MSFT.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

 


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/alphabet-inc-googl-stock-battles-to-be-your-ai-company/.

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