Alphabet Inc.’s (GOOGL) burgeoning artificial intelligence (AI) division, Bard, is causing concern among some analysts regarding the impact it may have on the search giant’s margins. However, UBS analyst Lloyd Walmsley believes those fears are overblown, suggesting that any cost concerns will be offset by the numerous cost reduction initiatives currently in place.
Is Alphabet’s AI Division a Boon or a Bust?
“Blowing a hole” in margins is a significant fear for any company, and Google is currently facing these same concerns relating to its introduction of artificial intelligence. However, Walmsley believes that this concentration on costs is misplaced and overstated. Many recent developments in AI have brought down the cost of integrating generative AI into Google search results, with companies like OpenAI reducing costs for ChatGPT by up to 90% from December to March of this year. This reduction is evidence that costs related to AI integration are already reducing quickly, and Walmsley expects them to continue to do so in the near future.
Walmsley suggests that fear of cost increase around AI integration into Google search needs to be quantitated against the potential for growth and revenue that AI can produce. The benefits of using AI, particularly for personalized search results, far outweigh the potential risks, including concerns over privacy, by tailoring search results to users’ locations, interests, and other factors. By being able to provide greater benefits to users, Google can grow its search business faster and maintain or improve margins.
Recent developments in AI and machine learning, particularly the growing applications in natural language processing (NLP), will become increasingly important for delivering personalized search results, chat services, and voice-enabled assistants. Companies are currently spending heavily to improve their competitiveness in these areas, and Alphabet’s Bard is no exception. The Division is focused on building deep NLP capabilities, and through its integration with Google Search and other platforms, it can generate significant benefits in terms of relevance and user satisfaction.
Google’s AI Division a Good Bet for Investors
Walmsley notes that Alphabet has a long history of investing heavily in innovation and picking up additional companies to bolster its expertise in key areas. Through its investment in AI and the creation of division Bard, the search giant is continuing this trend. Investors who have watched Alphabet’s stock rise and soar over the years need not be worried about any short-term cost concerns from Bard. Instead, the search giant remains a good long-term bet, particularly as the benefits of its AI integration continue.
Walmsley predicts that Alphabet’s Bard division will continue to invest heavily in building deep expertise in NLP, machine learning, and bot technology, creating new applications for these technologies that address both existing and new markets. These investments will take time to generate significant revenue, but they are essential to ensure that Google remains at the forefront of the AI revolution.
Conclusion
Investors in Alphabet’s stock should not worry about short-term cost concerns over AI deployment, particularly as developments in the space continue to reduce costs. Instead, Alphabet’s AI division Bard remains an essential component of the company’s long-term strategy, and its strategic investment in the space provides a strong foundation for growth, particularly as new applications continue to emerge. As such, Alphabet remains a solid choice for investors looking to invest in the ever-expanding field of AI and machine learning.
