Stratego game images7/25/2023 There is the positive view of the Silicon Valley optimist that believes all technology ultimately is good for humanity and that AI technology will turn out to be extremely positive for our society. There seems to be three competing ideas about AI as to what it means for our civilization. But as the recent price action has shown the market is also aggressively repricing Alphabet shares. If we take a look at valuation then Microsoft is valued at 2.6% free cash flow yield while Alphabet is valued at 4.8% suggesting the market is betting on Microsoft for now. They both have the economic muscles to compete and invest in AI with Alphabet’s latest fiscal EBIT of $74.8bn while Microsoft had EBIT of $83.4bn. As we have talked about in several equity notes, Nvidia is the AI equivalent of shovels back in the California gold rush, but in terms of the actual AI implementation investors must decide on investing in either Google or Microsoft. In a recent study by Critical Mass, consumers of all ages believe that Google is leading the race.Īs described above Alphabet (Google) and Microsoft are in a tight AI race and any investor in the world must decide how to get exposure to AI technology. If it becomes a consumer led trend then Google with its many consumer application across email, search, maps etc. Microsoft has the upper hand in enterprise distribution and software, and will thus win the AI race economically if this becomes an enterprise led trend. One of the defining factors in the AI race is whether it will be an enterprise or consumer led trend. This is a formidable force in AI research and especially DeepMind’s lead in many real-life applications such as protein-folding, energy optimization for data centers, and tokamak fusion confinement make us to believe that actually Google has the upper hand. Maybe Google was leading all the time? In a recent move, Alphabet combined the Brain AI research group with DeepMind creating a combined AI research unit consisting of 1,000 scientists. For years, Google’s subsidiary DeepMind, based out of London, had been making ground-breaking results in games such as Go (Chinese chess) and Stratego to the protein folding problem and recently managing tokamak fusion plasma with magnets.Ĭombining all of the results over the years, one could argue that Google had been leading all the time and the recent extraordinary results of the updated Bard chatbot got investors to rethink their expectations for Google in the AI race. Google chose the cautious approach to AI technology because of its internal ethical boards and guidelines, but when ChatGPT was released Google had no other option than follow the lead. Google had for years been researching heavily in AI technology and released a similar technology to ChatGPT two years ago called LaMDA. Immediately investors soured on Alphabet shares saying the company was behind OpenAI and would lose the AI race. What the price chart since 23 January 2023 also show is that Alphabet (Google) shares lost a lot of value when Google’s AI chatbot Bard made a factual error in its first demo. Microsoft vs Alphabet (Google) | Source: Bloomberg Since Microsoft’s $10bn investment the market value of Microsoft has increased $521bn reflecting the market’s big growth expectations for AI technology. Many thought that it was a big investment for an emerging technology that was losing money, but as OpenAI upgraded the underlying GPT system for ChatGPT things changed fast with company reaching 100mn users in the first two months of its launch, the fastest ever product adoption. The AI race kicked into gear when Microsoft on 23 January 2023 announced its $10bn investment, its third and biggest investment into OpenAI following investments in 20. Apple is clearly missing from the AI race and are going after other businesses such as software for cars and health services related to its Apple Watch. Amazon is awkwardly off in this race and has lost its attraction among investors following its failed investments during the pandemic and failed growth bet on voice assistant technology. The race for AI leadership is one for the agesĪfter Meta’s failed bet on the Metaverse, it should be clear by now that Google and Microsoft are the two giants battling for the lead in AI. Sam Altman’s testimony in yesterday’s US Senate committee hearing indicates that regulation will soon come to AI technology.Google’s latest update to its chatbot Bard has excited investors making them completely repricing Google’s expectations in the AI race.Microsoft and Google are the two leading companies competing for the lead in AI technology with Amazon, Meta, and Apple clearly lagging behind.
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