AI: Google Scales AI in costs too. RTZ # 345

...AI enhanced Search cost concerns prematurely overblown

Almost immediately after OpenAI’s ‘ChatGPT moment kicked off the AI Tech Wave in November 2022, the markets immediately were concerned about Google’s ability to protect its global Search franchise. One concern in particular cited was the AI Inference costs of AI, when applied to Search, were then multiples higher than regular Google Search queries.

Google just reported a strong AI driven quarter, and the Information notes an important item in “What Google Investors should really be cheering”:

“Last week’s rally in stock of Google parent Alphabet was attributed to the company’s introduction of a dividend, its big improvement in its operating profit margin and faster growth at Google Cloud. But investors might have been also responding to another piece of good news that got little attention: Google has managed to lower the cost of showing artificial intelligence–generated answers to queries 80% over the last year, according to Alphabet CEO Sundar Pichai.”

“Pichai’s revelation may have more significance than anything else coming out of the Google earnings figures. Its search engine accounts for half of the company’s revenue and a big portion of its profits. But when Microsoft in early 2023 added an AI chatbot and responses that summarized information from the web to its Bing search engine, investors fretted that Google would have to spend heavily to defend its market share, undermining its overall profits.”

Indeed, Microsoft CEO Satya Nadella early last year made a point about using AI to ‘make Google dance’. And has that ever unleashed a new Dancing Google AI fiend!

Of course, Microsoft and partner OpenAI will continue to do their best to dance competitively in both in AI Search and beyond. Ironic since Microsoft’s fears of Google’s strengths in AI led to its partnering with OpenAI in the first place. And Microsoft founder/CEO Bill Gates’ involvement with guiding Microsoft and OpenAI to do the original deal.

But incumbency matters. As does Google’s deep technical expertise and ability to deploy AI industrial scale infrastructure, especially with Google TPUs at the front of the TSMC line. At the Fabs in Taiwan and around the world.

‘And as I said last August in “Why Google’s ‘AI powered Search’ will win the AI ‘ChatGPT’ round”, the daily habits of billions of users conducting over 10 billion Google Searches a day matter.

Google and parent Alphabet has added over 30% and over half a trillion to its market cap since then. And a lot can go up and down going forward.

The AI race around Search is far from over. And as I said just a few days ago, OpenAI in particular has over half a dozen big things planned in the coming months, including GPT-5, which is again likely to reset the current LLM AI race against fast comers like Meta, Amazon, Anthropic and of course Google.

But Google is a reinvigorated participant in this AI race with Gemini, YouTube and many other AI Data plays ahead, under the leadership of Google/Deepmind AI head Demis Hassabis. With equal if not better opportunities to Scale costs down, while Scaling AI exponentially on the upside. And the race has just begun. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)