VSCertainty is a rare thing in the game of markets, but right now I have one prediction I can make with some confidence: if you follow the financial markets at all and aren’t already tired of hearing about AI, you will be by the end of this week. With Microsoft (MSFT) and Alphabet (GOOG, GOOGL) reporting their second quarter results on Tuesday, followed by Facebook parent company Meta (META) on Wednesday, AI will be mentioned so many times in the financial media that, if you’re not careful, the term will start to lose its meaning. If you can, however, you should try not to lose sight of the fact that this is a case where the hype is probably not overdone.
On the contrary, the potential for computer programs that can take advantage of the enormous amounts of information that exists in digital form in the world, draw logical conclusions based on that information, and then rewrite their own code to reflect it is even greater than the constant references to it would suggest. If, like me, you’re old enough to remember a world without the internet and can therefore appreciate how its advent changed lives, you might have an idea of what AI could mean. These changes have been so fundamental that it’s hard to imagine they came without a way to fully utilize the power of centrally stored knowledge, but with them the possibilities are immense.
What will matter this week for the three companies listed above is not the number of times they mention AI, nor their ability to explain how revolutionary it can be for their business. What matters is how much they already offer it to their customers and whether it can be a positive proposition for revenue anytime soon.
Through that lens alone, META is probably the least important of the three big tech names reporting this week. Despite its size and its attempts to rebrand itself as more than an advertising-focused social media company, that’s still what it is at its core. There is nothing wrong with that. Not all social media companies are Twitter or Truth Social. Some of them can earn a lot of money. However, Meta is much more likely to use the AI than sell it. If he develops his own killer program, there is always a chance that Meta will branch out into another line of business.
Restricting AI to internal use or paying for someone else’s AI technology is a more likely outcome for Meta. The company will talk about how they use it to refine people’s feeds and more accurately target advertising or otherwise, but for them it’s a tool to improve their existing products and services, not a product in and of itself.
For Microsoft and Google, on the other hand, AI technology has the potential to be a marketable product. For Microsoft, the opportunity comes from its association with OpenAI, the developer of the best-known generative AI program, Chat GPT. They invested $1 billion in Open AI in 2019 in exchange for an exclusive license to the technology, then announced another $10 billion investment earlier this year. The most obvious use for them is to create a better and more responsive search engine for their customers. It’s something they’ve been trying to do for a long time, and if Chat GPT finally gives them a chance, it’ll be huge.
Currently, their involvement with OpenAI gives MSFT a significant head start, and it will be interesting to hear this week how they plan to leverage this “first to market” advantage. Microsoft’s problem, however, is that Alphabet has its own AI project, DeepMind, and Google’s current dominance in the search market gives them an edge. They just have more research data to work with, and that’s a big plus for an AI program. What investors should be paying attention to this week is how Alphabet intends to take advantage of this advantage. Are they, for now, only focused on creating a better, even more dominant search business, or are there other plans to commercialize DeepMind?
If you’re an investor who, like me, has a sensitive hype sensor, this is going to be a tough week. We’ll hear to the hilt about AI, how it will transform all of our lives, and how it’s a huge opportunity for tech companies to expand their reach. What we may hear less about, however – and what you should focus on – is how they intend to use it to make money. For investors, that’s what matters, and the company that monetizes technology earliest and most efficiently, not necessarily the one that develops the best program, will be the winner of the AI wars.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.