In 1981, MTV debuted. Its first music video? The Buggles' "Video Killed the Radio Star." Many people thought that choice would prove to be prophetic. It didn't: Today, the radio business continues to thrive. MTV, meanwhile, is no longer the cultural juggernaut that it was in its heyday.
The way history unfolded for MTV and radio highlights that what might seem to be a foregone conclusion often isn't. I'm reminded of this by the current rampant speculation that OpenAI's ChatGPT chatbot could present a mortal threat to Alphabet's (GOOG +1.99%) (GOOGL +1.71%) Google Search. Fuel was added to the fire when Microsoft (MSFT +0.60%) announced that it's integrating ChatGPT with the company's own Bing search engine.
I don't buy into the doom and gloom for Alphabet. Microsoft and ChatGPT won't be Google killers. There's one company that could be, though.
Image source: Getty Images.
Potential enemy No. 1
The U.S. Navy fought with the U.K.'s Royal Navy in 1813 at what became known as the Battle of Lake Erie. After a U.S. victory, naval officer Oliver Hazard Perry sent a message that read in part, "We have met the enemy and they are ours." More than a century later, cartoonist Walt Kelly included a parody of that quote in his Pogo comic strip: "We have met the enemy and he is us."
I think that Kelly's paraphrase is applicable today. Alphabet's greatest potential enemy isn't Microsoft or OpenAI, and it isn't any other company. Alphabet's biggest potential enemy is itself.
No, I'm not disputing that OpenAI's ChatGPT launch will be viewed as a turning point in AI adoption. And I absolutely think that Microsoft's massive investment in OpenAI and integration with ChatGPT is a shot fired across the bow at Alphabet.
But Alphabet will never be brought down by an innovative newcomer, in my opinion. I don't expect it to be knocked off its perch by another technology giant, either. Instead, if the company ever loses, it will be because it failed to respond effectively to its challengers. Alphabet's real threat isn't an external one.
Alphabet has a bigger cash stockpile (nearly $113.8 billion at last count) than most companies are worth. It has thousands of the world's best scientists and engineers. The company stands at the forefront of many of the most important technologies around. (The "T" in ChatGPT, by the way, stands for "Transformer" -- a deep learning model developed by...Alphabet.) With these advantages, the company would have to botch things up in a colossal way to be overtaken.
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Key Data Points
Self-defeating?
Granted, if Alphabet had taken too long to respond to the ChatGPT threat (especially with Microsoft's moves), it could have been relegated to second-tier status. But that's not going to happen. The company took the matter seriously; Alphabet CEO Sundar Pichai reportedly issued a "code red" for a rapid response. We're already seeing the results.
On Feb. 6, Alphabet announced a limited release of Google Bard, a chatbot powered by its Language Model for Dialogue Applications (LaMDA). The company plans to make Bard available for general use within the next few weeks.
Like ChatGPT, Bard won't be perfect right out of the gate. Indeed, much ado was made about the AI system giving an incorrect answer to a question about NASA's James Webb Space Telescope. But Alphabet is initially releasing Bard with what it calls a "lightweight model version of LaMDA." It's a much smaller model so that the company can bring on more users and gather more feedback. This move should pay off with higher quality and increased accuracy.
I think that Baird analyst Colin Sebastian accurately summarized the current state of the chatbot race in a recent research note. He acknowledged that Microsoft appears to be winning the public relations battle right now. However, Sebastian added that Alphabet's AI expertise, engineering talent, cloud resources, and sheer scale should give it strong competitive advantages over the long run. He compared the AI contest to a marathon. That's exactly what it is.
A golden age for AI
My view is that any investors who underestimate Alphabet will regret doing so. I fully expect that Bard and other subsequent products will ultimately be significant growth drivers for the company.
More importantly, though, I'd argue that we're entering a new golden age for investors with AI stocks. Large language models and other AI technologies could be at the precipice of opening up major new market opportunities.
I don't believe for a second that Microsoft and ChatGPT will be Google killers. Neither do I believe that Google Bard will be a ChatGPT killer. My prediction is that there will be plenty of big winners in the coming years. Microsoft will be one of them -- but so will Alphabet.
