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🌈 Abstract

The article discusses Alphabet (Google's parent company) as a potential stock pick for 2024, analyzing its strengths and challenges in the context of the rise of generative AI models like ChatGPT. It explores how Alphabet's dominant position in search and vast trove of user data could give it an advantage in the AI race, while also acknowledging the company's missteps and the threat posed by nimble AI startups.

🙋 Q&A

[01] Alphabet as a Stock Pick

1. Why does the author believe Alphabet (Google's parent company) is a good stock pick for 2024?

• The author believes Alphabet has been "over-punished" for its slow response to AI, similar to how Meta was punished for its focus on the Metaverse.
• Alphabet still has significant cash reserves and a dominant position in the search business, which the author describes as the "best (most lucrative) business model of this millennium."
• The author believes that if 2023 was the "AI Star Wars," 2024 will be "AI The Empire Strikes Back," and Alphabet is well-positioned to capitalize on this.

2. What are the key advantages Alphabet has that could make it a successful AI player?

• Alphabet's vast trove of user data from its various products and services (e.g., Google Search, YouTube, Gmail, Google Maps) gives it a significant advantage in training and customizing AI models.
• The author argues that Alphabet's data is its "deepest moat" and the "bridge to the future," as it allows the company to build purpose-built AI models that can anticipate user needs and preferences.
• Compared to competitors like OpenAI and Microsoft, Alphabet has a more comprehensive understanding of its users' lives and can leverage this data to provide more personalized and valuable AI-powered services.

3. What challenges does Alphabet face in the AI race?

• The author notes that Alphabet was slow to capitalize on the transformer model technology it had developed, allowing competitors like OpenAI to take the lead with products like ChatGPT.
• Alphabet's reputation for quality and reliability has made it more cautious in releasing AI products, leading to missteps like the Bard chatbot launch, which caused a significant drop in the company's market capitalization.
• The author suggests that Alphabet is facing the "Innovator's Dilemma," where its success and market dominance have made it vulnerable to disruption by more agile and innovative competitors.

[02] The Innovator's Dilemma and Alphabet's Challenges

1. How does the Innovator's Dilemma, as described by Clayton Christensen, apply to Alphabet's situation?

• The author draws a parallel between Alphabet's position and the case of Kodak, which was slow to embrace digital photography despite pioneering the technology, as it threatened its core film business.
• Similarly, Alphabet has been slow to fully capitalize on the transformer model technology it developed, as it could disrupt its core search business.
• The author suggests that Alphabet's caution in releasing AI products that could be seen as inferior to its existing offerings has left an opening for competitors to fill.

2. What factors have enabled the rise of AI startups that are challenging Alphabet?

• The author notes that the original researchers behind the "Attention Is All You Need" paper that laid the foundation for modern generative AI have left Alphabet to start their own companies, taking their expertise with them.
• The availability of significant venture capital funding for AI startups, with over $50 billion raised in 2023, has allowed these companies to rapidly develop and deploy new AI models.
• The author suggests that these startups are "coming at the search game obliquely," by offering new AI-powered experiences that don't directly compete with Alphabet's core search product but begin to "nibble at the periphery."

3. What options does Alphabet have to address the challenges it faces?

• The author suggests that Alphabet's multi-class stock structure, which gives founders Larry Page and Sergey Brin outsized voting power, could make it difficult for activist investors to drive change at the company.
• However, the author believes that Alphabet can still be "saved" by leveraging its vast trove of user data to build purpose-built AI models that can anticipate and serve user needs more effectively than its competitors.
• The author also notes that Apple's recent moves to refocus on AI could pose an additional challenge for Alphabet, as Apple has access to a similar level of user data through its ecosystem.