Stock Market Says Alphabet Is AI Loser
Alphabet pours hundreds of billions into AI while its stock lags the S&P by double digits, and the reasons go deeper than most investors realize.
AI valuations are on the march. Meta (NASDAQ: META | META Price Prediction) has already shot itself in the foot by saying it would need significant funding to be among the AI winners. Its total AI-related spending could run to $635 billion over time. The disclosure was part of Meta’s earnings. The comments came just ahead of Anthropic’s IPO. It was a bad look, which showed a remarkable level of risk. Meta’s shares dropped 7%.
The other megacap stock with a very poor year is Alphabet (NASDAQ: GOOG). Its stock is just below flat, while the S&P is up 13%.
What is going on? Not much that is good. Like the other largest tech companies, it is taking a huge cash-flow-positive company and driving it cash-negative as it wraps up AI commitments that have moved into the hundreds of billions of dollars. Its flagship DeepMind project has seen a rotation of leaders and what outsiders characterized as delays. In a sector in which advances are prized, that is not good news. Gemini seemed to be a solid product out of the box. And it was set up so that anyone who had a Google product could use it. That’s a massive footprint of hundreds of millions of people.
But where was the enterprise adoption, which is where the real money is supposed to be? While companies like Anthropic signed up big companies and the federal government (which hasn’t gone so well recently), Google’s big win was a partnership with Apple (NASDAQ: AAPL). More adoption, but to what end? Alphabet gets paid $1 billion a year, which is next to nothing for them.
Stock prices are a pretty good proxy for a business’s success. Google has search, but it is being cannibalized by its own Gemini-driven results. However, search will be a great business for the foreseeable future, but won’t grow like it did in the past. It is nice to own YouTube, Gmail, and Maps, but there is no evidence it is close to AI’s cutting edge.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
