Google: The Intelligent Investors A.I. and Machine Learning Choice
The end of 2017 for The Seville Report was spent looking for the company or companies that will take the next step forward in artificial intelligence and machine learning. We started with big companies first, all the names you know, Facebook, Apple, Google, Amazon, Baidu, etcetera. We looked into some smaller companies, many of them privately held companies. After several days we landed on our pick for 2018, Alphabet, also known as Google.
Google has been winning the internet since its search engine came online in the 90s. It sounds exaggerated, but we don’t “Yahoo it” or “Excite it” or ”Lycos it,” we “Google it” today. The company has been able to leverage their search algorithm into a massive internet advertising business. According to Adweek Google has control of 40.7% of the digital advertising market and 32.4% of the mobile advertising market. In our discussion of Alphabet we’ll look into how the company’s current operations make it a quality investment idea and why a bet on Google’s future could be an investors best bet ever.
After dominating the internet search business, Google has expanded and continues to grow its user base across all forms of the internet. When it comes to email, Gmail is one of the most widely used email clients, of all the major email clients available Gmail has a 15% market share, only second to Apple. When it comes to mobile operating systems, Google’s Android platform shares a global duopoly with Apple’s iOS. The chart below gives a visual picture of how far the 3rd most used mobile operating system is behind Android and Apple’s iOs.
Google Play, the company’s site and app for digital content, like mobile apps, music, movies, and books reached a billion monthly users in 2015. YouTube (owned by Alphabet/Google) has over 30 million users a day and almost five billion videos viewed daily according to fortunelords.com. Google’s internet browser Chrome is the most popular web browser with 45% of internet users choosing Chrome over other browsers. Apple and it’s Safari browser is second with a 25% market share. Then there is Google Maps, which has over a billion users. Google has been great at developing and acquiring great platforms. Based on what the company has going on for it with the platforms mentioned, and the expectation that spending on digital advertising will continue to grow into 2021, we think Alphabet is a solid investment for anyone looking for a “safe” growth company.
Anyone familiar with Alphabet is aware of the moonshot division or the Other Bets division. If you are not familiar, Alphabet describes its Other Bets division as
“businesses such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R&D services through Verily”
Alphabet reported in its 2017 3rd quarter report that the Other Bets division contributed $794 million in revenue through September 30 2017. But it’s not all roses, the division had an operating loss of over $2 billion in that same period. If you were to visit the websites of the companies listed under Other Bets, you would see that a lot of these companies are attempting to do great things that will benefit Alphabet shareholders in the future. However,the two companies that we are placing our bet on to move the needle for Alphabet is Waymo and DeepMind.
Source: Wired. Waymo self-driving vehicle
Waymo is Alphabet’s autonomous car initiative. It was started back in 2009, a time when the reality of a self-driving car seemed far away, but in 2018 they are here. Waymo’s self-driving cars have driven more miles than any other company’s autonomous vehicles. In late 2017 Waymo began sending out their self-driving cars with out safety drivers. The company and society is getting closer to the day when vehicles drive themselves. Waymo believes they will be able to give people rides in their driverless cars in the not so distant future. If Alphabet were to be the first to commercially release self-driving technology this could have a huge impact on Alphabet’s stock price.
The second company within Google that we feel will contribute to revenue and profits in the future is DeepMind. In 2014 Alphabet purchased London based Artificial Intelligence company DeepMind Technology. You may have heard of DeepMind’s AlphaGo, which beat a professional Go player in 4 out of 5 games of Go back in 2015. This was seen by many as a triumph for artificial intelligence with human intuition. Go is considered to be the world’s hardest game, it’s described as being a much more intuitive game than chess which is seen more as a game of logic.
Source: Tokyo Weekender (A game of Go)
After beating the best at Go, DeepMind is ready to apply it’s technology to real world problems. DeepMind has partnered with Moorfields Eye Hospital and University College London Hospitals. The plan is to allow the DeepMind algorithms to do the routine work like reading scans, which will allow others more time to attend to patients. For Google, DeepMind’s technology has helped reduce the electricity needed for cooling at the company’s data centers by 40%; and the WaveNet technology has helped to generate the voices needed for Google Assistant.
While we have an optimistic view of where Google’s stock price is heading with their development of autonomous vehicles, Google and Waymo aren’t the only companies working on autonomous vehicles. In this list of companies most likely to get self-driving cars on the road first, Waymo ranked seventh, Ford was number one, followed by GM at number two. However, many believe Waymo is close to putting cars on the road in 2018. Aegis Capital’s Victor Anthony stated on CNBC’s Squawk Box that he believes Waymo will come into its own this year by putting out a commercial product at the end of 2018. Anthony believes that Waymo’s accomplishments aren’t priced into the stock price of Google. This is good news for potential investors.
As for artificial intelligence and machine learning, many companies, public and private are working on some form of AI/ML, and this represents a slight risk to any investment in Google. The advances in AI and ML are moving quickly. In 2011 the world witnessed, read, or heard about IBM’s Watson competing on Jeopardy against two former Jeopardy champions and besting them both. Fast forward several years and AlphaGo — not related to IBM’s Watson — is beating a Go champion in 4 out of 5 games. The next AI/ML advancement could come from another company not owned or operated by Google, and that company’s AI/ML tech could possibly leap frog what Google and DeepMind have established.
DeepMind’s impact on Google’s stock price will likely not happen any time soon, but we believe it will happen. For now we believe DeepMind’s advances in AI will show up in Google products like Search, Chrome, Gmail, Google Maps, and Google Play. Google will likely use their AI to better the user experience of its products for its billions of users. We’ve already seen this in Google’s latest phone the Pixel 2. The phone has received great reviews for it’s camera and picture quality, and what made this possible was the use of a small amount of AI and ML tech to manage the camera system. I expect Google to continue adding AI and ML technology here and there to its long list of consumer products.
As stated earlier Google isn’t the only autonomous vehicle, artificial intelligence, machine learning company out there, but we believe it’s the company that represents the best investment vehicle for anyone looking to invest in autonomous vehicles, artificial intelligence, and machine learning. Google has used its technology to dominate the internet search business and the internet advertising business, and this was all done with better algorithms and software than those that existed before Google. Our bet is that the company that has been great at developing algorithms and software will do it again with AI and ML and become the dominant player in that space as well.
If your interested in reading more about what Google is doing with AI you can read more here.
If your interested in our free investment newsletter on Google you can read more here.