Data is one of the biggest assets a company can have when it comes to developing and training AI models, and no one can compete on data against Alphabet (NASDAQ: GOOG, GOOGL), a company that has lots and lots of data thanks to the fact that it’s the parent company of Google. As a result, the investment banking titan, Goldman Sachs (NYSE: GS), hailed Alphabet as the leader among the Magnificent Seven when it comes to AI.
But that’s not the only great news for Alphabet, as it was reported recently that the company is partnering up with Meta Platforms (NASDAQ: META) to bring AI to Hollywood, a move that could greatly affect streaming giants like Netflix (NASDAQ: NFLX) and Disney (NYSE: DIS).
Alphabet’s Data Advantage
There are approximately 99,000 search queries processed by Google every second, which is nearly 8.5 billion search queries every day. Therefore, there’s no doubt that the website traffic that Alphabet generates provides the company with more data points than any other competitor. This is why, hedge fund manager and Alphabet investor Bill Ackman cited Alphabet’s “substantial distribution moat” as a unique feature for the company to sustain its lead in the AI realm. Using this large portion of data, Alphabet decided to team up with Meta to develop technology that can create realistic scenes from a text prompt, and have offered tens of millions of U.S. dollars to partner with Hollywood studios in some capacity.
On the other hand, OpenAI, backed by Microsoft (NASDAQ: MSFT), is having similar conversations with the studios. However, we know that OpenAI’s data can’t compete with Alphabet’s and this gives Alphabet the edge here. In fact, even if Microsoft allows OpenAI to access all of Microsoft Bing’s data, it won’t even come close. Bing generates around 900 million searches per day, and when compared with Google’s 8.5 billion, that’s a 840% difference.
AI companies seeking deals like this isn’t at all new or strange, as Hollywood studios are already using AI in production, and many filmmakers are eager to discuss ways to use AI to reduce costs. In fact, Tyler Perry has used the technology to recreate the makeup he wears for his Madea character in movies, and director Robert Zemeckis has deployed AI to de-age Tom Hanks in an upcoming film.
The Downsides
There’s still one crucial downside to this that could destroy all of these AI deals, and this is why studios are approaching these deals with caution. Hollywood studios are essentially trying to protect themselves from having their work stolen as they are wary of giving films and TV shows to tech companies without control over how that content is used.
OpenAI actually ran into a similar problem with actress Scarlett Johansson over the past few days, as the actress asked the AI company to stop using a voice that sounded like her to power its chatbot after she refused to work with the company. Johansson isn’t a studios company or a streaming giant, but with that being said, companies like Disney and Netflix are not willing to license their content to these companies, but have expressed an interest in other types of collaborations.
On the other hand, Warner Bros (NASDAQ: WBD) has expressed a willingness to license some of its programmes to train the models, but only for specific divisions, not its entire library. If Alphabet and Meta manage to convince the entertainment companies and pull this off, they’re set to reap great benefits, as the American movie industry is projected to grow at a compound annual growth rate of 7.62% from 2024 to 2030, reaching around $26.92 billion, and perhaps, we will see even a bigger number. Therefore, early leaders like Alphabet trying to implement AI in the industry will have a very large piece of the pie in the upcoming years from the movie industry.
Analysts’ Opinions on GOOG Stock
Evercore analyst Mark Mahaney set a price target of $220 on GOOG stock, which is an upside of 24.7% from the current trading levels. Additionally, Goldman Sachs analyst Eric Sheridan reiterated a “Buy” rating on GOOG stock with a price target of $195, which represents an upside of roughly 10.5% from the current trading levels.
Sheridan said that Google’s Marketing Live keynote outlined Alphabet’s vision for its AI tools and services launch in the context of digital advertising. The analyst noted that Google continues to iterate on how AI can increase the performance of ad spend across Search, YouTube, Performance Max, and, increasingly, third-party platforms and inventory. Also, it appears from the research note that Sheridan remains constructive in the mix of Alphabet’s business and operating profile in the coming years.
GOOG Stock Forecast
GOOG stock looks really cheap right now, as the company has the lowest forward price-to-earnings ratio among its Magnificent Seven peers. Investors might be discounting Alphabet’s growth prospects, and the reason is largely rooted in competition. It’s true that ChatGPT is extremely popular, and Microsoft has seen some impressive growth since integrating the AI tool throughout its ecosystem. But this doesn’t necessarily mean that Alphabet’s business model is in danger.
In fact, rising competition and booming use cases in AI could very well lead to a new chapter in Alphabet’s growth story. Alphabet is extremely well positioned to benefit from AI. As people continue to rely on Google and YouTube for searching for information and entertaining themselves, Alphabet will remain as the leader in data collection. This should ultimately serve as the catalyst for the company’s long-term AI roadmap. Therefore, this discount in GOOG stock compared to its Magnificent Seven peers could be a buying opportunity, and long-term growth investors should consider taking advantage of this.
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