Alphabet Inc.’s recent results raised hopes that the Google parent can still be a big player in artificial intelligence. Now it has a chance to prove it.
Investors are hotly anticipating the company’s Google I/O annual developers conference Tuesday, where it’s expected to unveil AI features for its search business and broader ecosystem. Bank of America wrote that the event “could help solidify the case for Google (and the Android ecosystem) as a net AI beneficiary.”
The event comes a day after a similar one from OpenAI, where it launched a faster and cheaper version of its ChatGPT model. Some high-profile disappointments have raised lingering questions about Alphabet’s ability to compete against Microsoft Corp.-backed OpenAI despite years of heavy investments.
“Alphabet is in a unique position to show it is making progress, that it can re-right the AI ship, that things aren’t as dire as people thought,” said David Mazza, chief executive officer at Roundhill Investments. “The results are more than enough to support the stock in the near term, but the event offers an opportunity for an upside surprise, and if it can show off, what better time?”
Shares dipped 0.1% on Tuesday.
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The company’s AI position gained new urgency following a report that Apple Inc. has closed in on an agreement with OpenAI to use its technology on the iPhone. Apple has also held talks with Google, the default search engine on the phone, and those discussions are ongoing. Apple will unveil its own AI strategy at an event next month.
Last month’s earnings report showed robust financials — not only did Alphabet beat expectations, but it implemented a dividend and authorized a $70 billion buyback program. Its shares are up 21% this year, and the rally has taken it above the elite $2 trillion market cap threshold. The Nasdaq 100 Index is up 8%, while Microsoft has risen about 10%.
An underwhelming I/O event isn’t expected to reverse that rally, given the strength on display in the results and how Alphabet continues to screen as a bargain among the Magnificent Seven. However, reassuring investors about its position with AI could be a catalyst for additional gains.
There are some positive signs. Morgan Stanley, citing AlphaWise data, sees accelerating adoption of the company’s Gemini AI engine, and analyst Brian Nowak noted Alphabet’s “still-leading (and expanding) spot at the top of the e-commerce, travel, autos, financial, healthcare funnels.”
While shares are near record levels, Alphabet has been dogged by perceived AI missteps, including with its Gemini image generator earlier this year and a chatbot in 2023. The idea that information derived from AI may not be reliably accurate was seen as a risk, especially for Google, which has a dominant market share in internet search.
“Alphabet will freely admit it has gotten AI wrong, but the important thing is to show it is committed to AI and that it has the resources to be a leader,” said Tim Pagliara, chairman and chief investment officer at Capwealth Advisors. “It has to show it is making progress while not creating unrealistic expectations for what it can do.”
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Companies are talking less about “artificial intelligence,” a buzzword central to meteoric gains in tech stocks, raising questions about how much of the technology’s benefits may have already been priced in. Mentions of the term on calls this past earnings season have dropped sharply compared to the previous four reporting periods, according to a Bloomberg analysis of S&P 500, Nasdaq 100 and Stoxx Europe 600 earnings transcripts.
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