The Fight for AI Dominance Could Make or Break Alphabet Inc Stock

Government contracts can mean big things for Google stock

By Dana Blankenhorn, InvestorPlace Contributor

http://bit.ly/2IN8Gs3
google stock

Source: Shutterstock

It may sound ridiculous to call Alphabet Inc (NASDAQ:GOOGL) desperate about anything, but “only the paranoid survive” in tech, as the late Intel Corporation (NASDAQ:INTC) CEO Andy Grove said. And Google has a good reason to be paranoid. It’ss losing the war in Artificial Intelligence and AI is the future of tech. Google stock may be in trouble.

Alexa, from Amazon.com, Inc. (NASDAQ:AMZN) is dominating the consumer smart speaker space, with almost 72% of the market, leading to a host of new applications. Google has been doing all it can to catch up, but Alexa’s support in other consumer devices means its skills are increasing at a much more rapid rate.

Thus, the market cap of Amazon zipped past that of Alphabet in the last year. As trade opened May 15, Amazon was at $777 billion, the House of Google at only $766 billion.

Turning that around requires some big-time help. Google is finding it in the military.

The AI War and Google Stock

Google has joined “Project Maven,”  a Pentagon effort to use artificial intelligence to analyze drone footage and come up with targets more quickly. There’s a lot of money at stake, as much as $7.4 billion being spent in 2017 alone.

About a dozen Google employees have since resigned, complaining their bosses are no longer transparent about business decisions and less interested in hearing employee views. An internal petition protesting the decision reportedly has 4,000 names on it.

But the government is going ahead, and if Google doesn’t join the resulting technology will go to the “usual suspects” – contractors like Northrup Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and General Dynamics Corporation (NYSE:GD).

More important, Google might lose out to Amazon, which is expected to win the military’s $10 billion contract for a defense cloud. Amazon already has the CIA’s cloud contract.

Having military applications built on Amazon’s platform could be the death knell of Google’s hopes in AI, when combined with Amazon’s existing lead in the consumer space. Google really had no choice but to respond.

Google’s Strengths Can Save Google Stock

Google remains strong in pure research, and much of what the Pentagon wants is just that, pure research.

Google’s DeepMind has created a system that navigates as well as living creatures. Apply that to running robots  and you potentially replace soldiers in the field. Google Duplex can mimic human interactions over the phone, scheduling appointments. Critics to call this “ethically lost”  but the applications are enormous.

These are the kinds of software insights the military wants to tap into, and Google knows that means the military will now pay it to do what it must do to overtake Amazon, or at least compete.

The Tech-Military Connection

Computing has always been driven, in large part, by national security.

The first electronic computer, ENIAC, was developed on a Pentagon contract. The Apollo Program was a Cold War project, and the early rockets were structurally ICBMs. Even the Internet you’re now using was originally a military project, DARPANet.

Google can’t afford to ignore this history while it’s in a life-or-death struggle to maintain its cloud leadership, not just against Amazon but against other cloud czars like Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL).

All the cloud czars are building out capacity as fast as they can, knowing that the key to their futures is to monetize this capacity better than rivals.

Google’s work with the military is a reason to buy Google stock, not dump it.

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 [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/google-stock-ai-dominance/.

©2018 InvestorPlace Media, LLC