Alphabet is back on the radar. The tech giant rejoins our watchlist after an ill-timed exit in March. Our departure was driven by concerns that Google’s AI development, specifically Gemini, wasn’t progressing fast enough to challenge OpenAI’s ChatGPT. Additionally, regulatory headwinds loomed, with the Department of Justice pushing for a potential spin-off of Google’s Chrome browser and seeking to alter the lucrative default search engine deal with Apple.
However, the landscape has dramatically shifted. Google has since unveiled Gemini 3, a significant advancement that has not only set a new benchmark for large language models but was also developed and operates entirely on Google’s custom-designed silicon. This hardware, created in collaboration with Broadcom, is a key piece of the puzzle. The market is now recognizing the potential of this custom silicon, not just for its extreme efficiency in running AI models, but as a burgeoning new revenue stream. Early indicators suggest growing interest from other companies looking to leverage this proprietary technology.
Furthermore, the legal challenges have largely resolved in Alphabet’s favor. The courts ruled against the forced spin-off of Chrome, and the long-standing, mutually beneficial search partnership with Apple remains intact. This is particularly significant given Apple’s strategic intent to integrate third-party AI capabilities into its upcoming Siri upgrades. While ChatGPT offers solutions for complex queries, Apple appears poised for a more deeply integrated, conversational digital assistant experience. As Jim Cramer has noted, Google’s existing search arrangement positions it as a potentially stronger AI partner for Apple compared to OpenAI.
The competitive AI landscape is also becoming clearer. With OpenAI reportedly nearing a $1 trillion valuation amidst its latest funding round, questions arise about its financial capacity to meet substantial commitments for data center build-outs and AI chip procurement, estimated in the trillions. Considering OpenAI’s ambitious spending plans and significant cash burn, Gemini, powered by the robust financial engine of Google, appears to be a more sustainable and potentially more valuable entity.
Looking ahead, exiting a position due to past concerns, when the fundamental facts have so significantly evolved, would be a disservice to future potential gains. The focus must remain on the forward trajectory of the stock, not its recent past. Acknowledging a past misstep is one thing; allowing it to cloud an objective assessment of Alphabet’s future earnings potential is another.
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