Alphabet, with its Gemini large language model, stands as a formidable leader in the artificial intelligence race, a position increasingly recognized by market analysts. This was the central tenet of Mark Mahaney’s discussion with the CNBC Squawk Box interviewer, where the Evercore ISI Head of Internet Research offered sharp commentary on Alphabet’s stock performance, the state of AI competition, and Meta’s approach to AI talent. Mahaney underscored Google's strong foundation, dismissing earlier market anxieties about its competitive standing in the rapidly evolving AI landscape.
Mahaney firmly believes that Alphabet possesses "one of the best large language models out there" in Gemini, positioning Google as a frontrunner, or at least one of the leaders, in the AI domain. This perspective contrasts with previous market fears that Google might be left behind, particularly when the stock traded significantly lower. The recent news of Apple exploring Gemini for its Siri revamp further validates Google's advanced AI capabilities and broad applicability.
Beyond its core AI models, Mahaney highlighted Alphabet’s robust ecosystem. He pointed to the enduring strength of Google's search business, which continues to sustain double-digit revenue growth without losing market share in commercial searches. This foundational stability provides a strong platform for AI integration and monetization.
The discussion also touched upon the monetization strategies for AI. Mahaney anticipates a hybrid model, suggesting that while some AI features will remain free, a significant portion will transition to a subscription-based service. "My guess is that they'll do a combo," he stated, envisioning a scenario where users pay for "the most leading-edge Gen AI features." This approach offers a diversified revenue stream, moving beyond the traditional advertising model.
Alphabet's appeal extends to its valuation. Mahaney emphasized that among direct AI companies, Alphabet remains "the cheapest one," trading at approximately 19 times earnings. This valuation, combined with its strong AI assets and accelerating segments like YouTube and Google Cloud, presents a compelling upside for investors. Even Waymo, the autonomous driving venture, was cited as a continuously growing asset, representing a "most interesting physical manifestation of AI."
Regarding Meta's reported AI hiring freeze, Mahaney expressed skepticism about any significant reduction in their AI intensity. He observed that major tech companies, including Amazon, Google, and Meta, are consistently increasing their AI investments because they are seeing tangible returns. "The lean-in, the spend is growing each year and it's growing aggressively because these companies are really feeling like or believe that they're getting a great return on that spend," Mahaney clarified. Meta's recent revenue and profitability results, he argued, underscore the efficacy of their AI investments, making a material cutback in AI talent unlikely.
