Investment Alert: Buy Google (GOOGL) Under $110/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
When ChatGPT launched, it became the fastest growing product, winning over 1 million users in five days and 1 billion users in two months.
Soon Alphabet felt the pressure to launch its Generative AI competitor to the world, Bard. But the launch was widely perceived as a flop. Inaccuracies and errors were prevalent in Bard that didn’t seem to sully Open AI’s ChatGPT.
Sometimes, Bard would confidently state facts as if they were true, when they were not. Having fumbled the ball on the global stage, Alphabet’s AI team was left to scurry back to HQ to play catch up. Which brings us to the question, will it catch up?
- Alphabet has a history of success in growing and monetizing new products. For example, Google Search, YouTube, and Gmail were all initially slow to gain traction, but Alphabet was able to turn them into massive successes.
- Bard is a powerful new tool with the potential to disrupt many industries. Expect management to figure out how to improve upon it and commercialize it.
- Investors should not underestimate Alphabet’s ability to monetize Bard. The company has a proven track record of success, and it has the resources to make Bard a profitable product.
A Walk Down Memory Lane
To understand the potential for Bard, we’ll take a trip down memory lane and revisit Facebook in the early days.
Fifteen years ago, Facebook was the “new shiny thing” and was growing like a weed. Critics regularly took shots at management, but one in particular stood out; the company’s lack of monetization.
The platform had all an abundance of users but how would it make money?
In hindsight, the statement seems absurd. But it was a hotly debated topic back in the day. What the critics weren’t paying attention to is Zuckerberg and his team could adjust the “dials” however they saw fit “more users” – great, crank it up, “more money” – awesome, turn that dial. The point is management chose user growth over monetization early on to establish a moat that couldn’t be crossed by competitors.
To put it clearly, management knew precisely what it was doing, and strategically decided to defer monetization until it had an unassailable lead.
So, how does this tie into Alphabet and Bard?
Belly Flop or Swan Dive
Now fast forward to today. The question for investors to ask is will Alphabet turn its initial belly flop with Bard into a swan dive by catching up and surpassing ChatGPT?
Similar to Facebook with all its enormous resources, it’s hard to fathom that it will not improve upon and commercialize Bard successfully. In Alphabet’s DNA is superior product design, after all. From Search to Gmail to Maps, Alphabet has figured out how to deliver best-in-class design time and again.
More importantly, it has figured out how to commercialize on a virtually unparalleled scale. Five years ago revenues were $136 billion. For the most recent fiscal year they had more than doubled to $282 billion.
The risk to Google from Bard is that, theoretically, Google is no longer needed in a world where Bard is perfect. One day soon, it should be able to answer search queries as well if not better, rendering Google Search useless. Unless users find value in the two co-existing, which is possible. Some users will prefer to have the ability to directly search various results versus being provided one single option from a chatbot.
Underestimate At Your Peril
The big lesson investors learned with Facebook is when a product is just “so good” that user growth is exploding, underestimating the ability of a world class management team to monetize is done at your peril.
Google was underestimated for much of its life too, despite going from one monster success to another. Google Search exploded. YouTube exploded. Gmail won the dominant market share. Google Maps took over. And so on.
The takeaway: Alphabet will figure out the growing pains with Bard, and you can bet they will figure out how to monetize it too. This is a stock to hold for at least the next decade as it has been for the last decade and more.