¶ Future of Artificial Intelligence and Technology
Hello and welcome to Skeptic's Guide to Investing with Glenn Miller and myself , Steve Ebenholt . In this episode , we're going to talk about Alphabet , still often called Google . Yesterday , Alphabet had a conference for its certified software developers . Alphabet rolled out a series of new products and product improvements .
Glenn , can you share with us what was unveiled at the developers conference ?
Okay , so Google , that is , Alphabet has a product called Gemini and that is their AI product .
Think of it as being like the more famous open AI , which is affiliated now with Microsoft into the entire product line of Alphabet and also trying to create the capabilities technologically that allow Gemini to operate , so in terms of chips as well as data center technologies . So that's what they're doing , that's what the that's what the presentation was yesterday .
The presentation was was absolutely awesome in terms of the ability of the uh , of essentially a new type of Google search search generative experience is what they call it which will provide all sorts of information on a multimedia basis and actually anticipate the questions that you want answered .
So it's kind of , you know , take open AI but make it more sort of search focused , and that's what you get with the search generative experience of the new Gemini powered Google . That's interesting .
Imagine this Gemini model and many of its specific versions would require a huge expansion in computer power . Has anybody thought about how ready the market is for any of these ideas , because it feels to me like we're going to shortage in terms of the chips we need for this type of technology .
Okay . So , steve , there are really two types of chips that are useful in this area . One are the graphical processing units , the GPUs , that are used basically to support the NVIDIA computer stack , and we've all heard about the GPUs .
We've done some of these podcasts , or at least one podcast on NVIDIA and its GPUs , and what Alphabet is doing is they have a partnership with NVIDIA , like some of the other magnificent seven companies have .
They also have partnerships with NVIDIA , but the real thing , the real big thing and different thing that Google is doing , that Alphabet's doing , is they have been developing their own chips and they call it the Tensor line of chips .
There's a they call it the tensor line of chips , and the last iteration of this , the sixth generation , is called Trillium , and and I think that's a play on trillions , because they want to be able to process trillions of of transactions , of information transactions , at any one point in time .
So it's the Trillium chips and those are CPU chips and they are used in the data centers to produce , as I said , trillions of calculations , to support the Google Gemini model .
It feels like we're looking for a whole new level of adjectives to describe this world of CPUs and transactions per second and decisions . Is Alphabet , meta , microsoft , and I saw recently that Tesla has a deal now with Oracle for using databases to try to help them with some of this decision making and servers and networks .
Do you think that there is a clear leader coming out of this , or has somebody figured out the path forward ahead of the others ? Or is this simply everyone is scattering in their own way to try to come up with their solution , but nobody really knows whether any of the solutions are particularly better or worse than the others .
Well , I think Steve , I think we're in the first or second innings for generative AI in terms of what it can do , and , to quote Mao Zedong , let a thousand flowers bloom . Right , I think that or was that Deng Xiaoping ?
I forget but anyway , let a thousand flowers bloom , the idea being that you're going to have all sorts of variations on generative AI that are being developed by all sorts of companies , and not just Magnificent 7 companies , but by a whole series of smaller companies as well .
It's just , we hear a lot about the big companies , the big tech companies , but I think we're going to see a lot of those smaller companies develop very viable products and then perhaps be scooped up by the big tech company . I think , though , it's early innings .
I think , right now , we're seeing somewhat different use cases for generative AI at the different big firms , and I think that , over time , really it's hard to say whether those use cases will harden into different paths for each of the companies , or whether there will be some more convergence of technologies and thus greater competition .
It feels to me like we had this same thing when we talked about operating systems . When we had operating systems , we had a bifurcation right there was the Microsoft operating system and there was the Apple system , and then we had the cell phones and we had the iOS of Apple and we have Samsung and others . It feels like there's going to be an A and a B .
When I look at this . I love your analogy to the innings , because to me everybody knows what a nine inning game is and when you know you're near the end of it and you know when you're kind of in the beginning of it .
But when I look at this term artificial intelligence it kind of bothers me a little bit , because when you think about artificiality it means it's not real and in some ways we've been doing artificial intelligence for a while . Look at your tax returns . You look at some of the QuickBooks , your tax returns . You look at some of the QuickBooks .
You look at some of the ways that we take information and information is assimilated for us using a set of algorithms or rules and the difference between that and generative AI .
I agree there's a difference , but I also think that what we're really seeing here is just a continuation and so to go a little bit off track here , I'm having an artificial hip put in in the beginning of June , and so I said to myself gee , is this like a ? When did this really start ? The first artificial hip was put in in 1891 .
And we've had various forms of metal and metal , metal and plastic , ceramic all types of different materials used in this procedure for 100 years . And I look at it and say to me this is new , this is something that I need to understand , it's uncertain . And then I look at doctors and say they've been doing this for years , they've been doing this procedure .
And so are we a little bit naive to say that artificial intelligence is really just arriving now , because it really feels like we've been finding ways to artificially supplement our lives , whether it's physical prosthetics or whether it's in trying to use software to solve real problems .
Yeah , so , Steve , you're the bionic , or you will be the bionic man soon . I will .
I'm just trying to figure out if they can maybe put a chip in me and I'd start to become much more agreeable and easygoing and it would improve my investment results .
Well , I mean , speaking of that , you had this experiment recently that Musk had with his company Neuralink you probably may have seen that where they had to pull out the chip , but they put a chip in a guy's brain to allow this guy to move objects around on a screen just by thinking about it , which I think is kind of a crazy thing and , uh , I'm not sure
I would want a chip ever put into into my brain , but it's uh , I imagine some people might , um , and of course it has some utility , or disabled people with prosthetics , and there's , there's people now who are able to help these people by perceiving the end of their fingers and be able to think about and and and achieve a sense of feeling from this artificial
limb which , if we're getting to that point , does artificial , you know .
Is it replacement ? Is it right ? Let's get back to Google .
Well , let's let me just say something first . I think generative AI is a category of the broader artificial intelligence .
I know sometimes people just use the expression AI to refer to generative AI , but the point you're making , which I totally agree with , is that artificial intelligence AI , robotics just goes way beyond what we're seeing here with open AI and Google and the others in terms of this . Generative AI experience Goes way beyond that .
It goes to the self-driving cars and so on .
So let's talk about Alphabet's Waymo project . What do you think about how Waymo and the cabs will influence or ? Are they a leader ? Are they a follower ? Is Tesla still Uber ? Who is going to win in this space , and does it matter to ?
us win in this space and does it matter to us ? So , for those of you who may not know , waymo is the autonomous car company or autonomous car vehicle that Google has developed and it is now driving around the streets of a couple of US cities in a cab formation , taxi formation , and I would say it's still in kind of beta testing .
It's had some accidents , although it would be very interesting to see data comparing Waymo's accident rate to the accident rates of basically human beings driving around those cities . We might be surprised to learn that Waymo is actually pretty good .
But I would say to your question , steve , about Waymo versus Tesla , I think Waymo and Tesla appeal to different kinds of consumers . I think there are people , especially in the big cities , who just don't like driving , who don't like being in the driver's seat .
They want to be ferried around as if they were in a bus or a taxi , and that's what Waymo does . For those folks , waymo has a great utility as a taxi . On the other hand , you've got folks who like to be in the driver's seat and they like to be assisted in their driving .
They may or may not want to have something close to full self-driving , but at the very least they want to be in the driver's seat to monitor , uh , what's going on , uh , on screens and that's what . Uh , that's what tesla gives them . Um , I've had the opportunity to test drive a full self-driving Tesla and it was quite an interesting experience .
I got to tell you that , in terms of weaving it out of crazy traffic , I thought I was going to die . But a lot of people in the front seats of those vehicles sort of like what they're experiencing , and so I basically see Waymo and Tesla as two different user cases , two different groups of consumers .
¶ Tech, EU Regulations, Stock Analysis
You didn't mention YouTube . Obviously , this is the most successful video platform , except maybe for TikTok successful video platform , except maybe for TikTok .
Yeah , I mean , I would say that one of the things that we have to look at is this effort , already passed by Congress , to perhaps get rid of TikTok , at least in the United States , for what I would say to be geopolitical reasons more so than anything else . And you're going to have two beneficiaries to that .
One is YouTube Shorts and the other one is Meta , that is , facebook Reels . But I think that YouTube Shorts is going to be the winner in that kind of competition if TikTok is forced to withdraw from the market .
I mean , who knows , against the US , big tech has started to happen . And where do you think Meta Microsoft and where do you think Meta Microsoft and Alphabet stack up in terms of having a problem with the government actions ?
Will one be more effective than the other in Europe with the EU , is much more , I think , troubling for the big tech companies than what we're seeing in the United States , and that comes from the nature , the different nature of EU competition and digital markets policies , digital markets being a relatively new rule in the EU , and what that difference is is that
in the US there's a focus on horizontal competition . By that I mean the US doesn't want to see big competitors buying each other and creating market concentration and there's less of a focus on big companies gobbling up smaller companies . In Europe it's the opposite situation where , yeah , I mean there's some concern about big companies gobbling each other up .
I mean there's some concern about big companies gobbling each other up , but the bigger issue is bigger companies gobbling up smaller companies , making it difficult for smaller companies to do business and then ultimately absorbing them . And that's what the EU is very concerned about with respect to US big tech .
They don't want US big tech to interfere in the normal , historical , traditional running of those economies , which , in Europe , has been focused more on small and medium-sized business .
So , clem , let's look at our mailbag and then , when you look at the quantitative , screens that I use and I'm not going to go into all the numbers here , but I look at growth and revenue growth . Earnings growth has been strong . Profitability and cashflow generation very strong . Lots of cash buybacks using the free cashflow generation very strong .
Lots of cash buybacks using the free cashflow generation . Very strong . Valuation actually not that expensive . So I think that's a good thing . It's not crazy expensive like Tesla is or Nvidia can be at times , so relatively inexpensive . In terms of how short sellers look at the market look at Google , I think that . Look at Alphabet .
I should say short sellers have very little short interest in Alphabet , so that's good . And lastly , one of the things I look at are Glassdoor ratings for companies in order to determine employee satisfaction as a sort of a proxy for corporate quality , and the Glassdoor rating for Alphabet is actually pretty good . So employees are very satisfied with the company .
So really across the board , it's really strong and I would say , if it has sometimes some weaker performance , I think you can expect that weaker performance to be turned around into stronger performance . So it's really a core buy and hold stock for me , yep .
I agree with almost all the aspects that you said . I think that the question has been why has it kind of lagged ? I think that the question has been why has it kind of lagged ? I think that for a while it felt like it wasn't participating in the Magnificent Seven , and it has recently come back and started to perform better .
But I believe that it's an integral part of the economy . I think it's an integral part of the economy . I think it's an integral part of technology and I think it's got good management in place to deliver on the project area that it has .
And it also has some projects that are , I think , a little bit of what I like to see and call reach projects , where they're going down a path that could have huge potential , but they're one of the few people who could do that because they have the resources . So I like Google as an investment . It's been in our portfolios .
It's in the space of communication services . I'd say it's probably our number one name . I think that when we look at this stock , we see something that has daily usage of individuals , and it feels to me like they're going to be one of the people who get into that first . Integration of AI for individuals not for businesses , but for individuals .
I think they start to do things which will impact people's lives . Thanks everybody for listening to the podcast today . Stay tuned for another episode of Skeptic's Guide to Investing .
We're doing other episodes on meme , stocks and the Fed , so please check us out and please let us know what you like and what you don't like , and we'll try to continue to get better .