Alphabet is not merely participating in the artificial intelligence revolution; it is poised to be its definitive winner, a sentiment articulated by Michael Nathanson, founding partner and senior research analyst at MoffettNathanson, during a recent discussion on CNBC’s ‘Power Lunch.’ His perspective challenges the prevailing narrative that AI could destabilize Google’s foundational search business, instead positing that AI integration will fundamentally enhance its value and solidify its market leadership.
Nathanson spoke with the CNBC host about the upcoming big tech earnings results, specifically focusing on why Google’s search business will improve with AI, and much more. He asserted that Alphabet should be considered the most valuable company globally, a bold claim underpinned by a sophisticated understanding of the technology giant's strategic investments and inherent advantages. This confidence stems from Alphabet’s unparalleled infrastructure, its nuanced approach to AI integration, and its robust ecosystem of user data.
One of the core insights driving Nathanson's bullish outlook is Alphabet's significant infrastructure advantage. He emphasized that the company's ownership of its own hardware, particularly its Tensor Processing Units (TPUs), allows it to develop and deploy AI models with remarkable efficiency. "Their infrastructure advantage lets them invest in AI more efficiently than almost any other company," Nathanson stated, highlighting a critical differentiator. This internal capability reduces reliance on external vendors like Nvidia, potentially translating into superior cost structures and greater agility in AI innovation. This internal control over the AI stack, from hardware to models, provides a strategic moat that few competitors can replicate.
Furthermore, Nathanson directly confronts the widespread fear that generative AI, exemplified by new entrants like OpenAI and Anthropic, poses an existential threat to Google’s search dominance. He argues that, contrary to popular belief, AI will not kill search but rather elevate it. "Search actually gets better with AI, as do the other parts of business of Google," he contended. The integration of advanced AI models like Gemini into Google's search functionality is designed to deliver more precise, contextually rich, and satisfying answers, thereby enhancing the user experience and, crucially, the value proposition for advertisers. This transformation shifts search from mere information retrieval to a more intelligent, conversational, and predictive interaction.
The strategic imperative for Alphabet lies in its ability to monetize these enhanced AI-driven interactions. While competitors might offer new AI-powered browsers or applications, they lack Google's comprehensive understanding of user intent and behavior. Alphabet’s expansive ecosystem, encompassing Google Maps, YouTube, Gmail, and its core search engine, provides an unparalleled trove of first-party data. This data allows Google to construct a highly granular profile of each user. "They have a great view of who you are, either from Google Maps, YouTube, Gmail, Search," Nathanson observed, underscoring the depth of this insight. This intimate knowledge enables Google to deliver highly targeted and performance-based advertising, which is far more valuable to advertisers than broad-stroke campaigns. The enhanced precision of AI-driven search results further refines this targeting, making advertising on Google platforms even more effective.
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The rapid adoption of Google's AI offerings, such as Gemini, further validates Nathanson’s perspective. He pointed to the impressive growth figures, noting, "Look at the growth of Gemini now. 250 million people. They added 200 million people in a quarter." This rapid user acquisition demonstrates Google's ability to seamlessly integrate new AI capabilities into its existing, widely used products. The company's vast installed base and its established user habits mean that even incremental improvements driven by AI can lead to massive engagement and, consequently, increased advertising revenue.
Google's business model is fundamentally about selling advertising. Its ability to leverage AI to deliver more targeted, higher-value advertising experiences is paramount. While new AI services may capture a segment of queries, Nathanson firmly believes that Google's unique combination of infrastructure, data, and existing user touchpoints will allow it to "monetize those queries better than anyone else." This isn't just about answering questions; it's about connecting users with relevant information and advertisers with interested customers in a more efficient and profitable manner. The company's established advertiser relationships and sophisticated ad tech stack provide a significant barrier to entry for any new competitor attempting to disrupt this performance-based marketing ecosystem. Alphabet’s journey in AI is not a defensive play to protect an eroding business, but an offensive strategy to amplify its core strengths.
