The emergence of ChatGPT: Evaluating Alphabet’s response and prospects in generative AI

The release of Alphabet’s generative artificial intelligence (AI) platform, Bard, has raised questions about its development and timing. Some analysts view it as a response to Microsoft’s integration of OpenAI’s ChatGPT into Bing. However, the platform’s debut in February, when it misrepresented factual information, suggested that it may not have been fully developed. In retrospect, Alphabet could have benefitted from delaying the launch and dedicating more time to addressing safety and accuracy concerns, improving data efficiency, and lowering high computing costs.

Alphabet’s success with Google Search, which emerged as the dominant search engine through a superior product, suggests that Alphabet may have been better served by focusing on developing a superior product rather than rushing to market with Bard. In my opinion, such an approach would have enhanced Alphabet’s ability to compete and succeed in the long-term.

Despite short-term challenges, Alphabet remains well-positioned for success in the generative AI field. The emergence of ChatGPT has presented Alphabet with an opportunity to ensure the long-term survivability of Google Search, its primary revenue generator. By addressing concerns related to safety, accuracy, data efficiency, and high computing costs, Alphabet could lead the market in generative AI.

However, Alphabet’s Q1 2023 financial results are expected to fall below analyst estimates due to lower year-over-year growth in advertisement sales, projected to be 5% compared to 7% in the prior year, and slower sales growth in its cloud computing business as large enterprises adjust to their significant cloud computing infrastructure.

Despite these short-term challenges, Alphabet’s margin improvement on a quarter-over-quarter basis, achieved through decreasing headcount and R&D and S&M expenses, is anticipated. Looking forward, Alphabet’s access to cutting-edge technology, a proven brand, and Microsoft’s track record of launching products that do not maintain their dominant position over time suggest that Alphabet is well-positioned to succeed in the generative AI field. The substantial fraction of landmark research associated with web search that was developed at research laboratories associated with key U.S. universities also positions Alphabet to attract key talent to bolster its efforts in this area.

In summary, Alphabet could have benefitted from delaying the launch of Bard and focusing on the development of a superior product. Nevertheless, Alphabet’s prospects for success in the generative AI field remain strong. The emergence of ChatGPT has presented Alphabet with an opportunity to ensure the long-term survivability of Google Search and lead the market in generative AI. Alphabet’s access to cutting-edge technology, a proven brand, and Microsoft’s track record of launching products that do not maintain their dominant position over time, make it well-positioned to succeed in the generative AI field.

Originally Published on FxStreet.
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