Google is on the wrong side of history…

Google is on the wrong side of history…

Where Innovation Meets Investing

Eyeballs = money… Google’s successor has arrived… The new homepage of the internet… I tried Google’s AI, Bard…

  1. I’m issuing a warning against one of the world’s biggest stocks…

Google (GOOGL).

It’s about to be disrupted in a major way.

And it’s all because of this golden rule of advertising:

Eyeballs = money.

This rule is why Google became so successful in the first place. No firm attracts as many eyeballs today.

Google is the most-visited website in the world. It processes 8.5 billion searches per day. That’s a lot of eyeballs.

And one out of every four ad dollars winds up in Google’s pocket—more than any business on Earth.

But as I’ll show you, Google’s era is coming to an end...

Eyeballs are starting to move away from Google. A new advertising competitor has come to take its crown.

  1. Don’t believe me? The history of adverting tells the story…

In the mid-20th century, newspapers ruled supreme.

Then came the TV.

Suddenly, millions of eyeballs shifted from newspapers to this new medium. And companies soon spent most of their marketing budgets on TV ads.

While Americans still read newspapers today, that number has dropped to just 16% of the population.

Unsurprisingly, TV stocks ruled the advertising space for decades…

Advertising firm Omnicom (OMC), which made TV commercials for famous brands like McDonald’s, produced 2,270% returns.

Marketing firm Interpublic Group (IPG), which made TV commercials for Coca-Cola, shot up 7,232%.

And cable company Comcast (CMCSA), the largest TV advertiser, soared 16,000%.

But then the internet came about, and eyeballs moved once again… this time, to Google’s powerful search engine.

In the early 2000s, Google dominated advertising, raking in half of all digital ad dollars. After its IPO in 2004, GOOGL surged 600% in just three years.

But around 2008, a new technology became popular—smartphones. And with smartphones came the rise of social media company Facebook (META).

As Facebook grew, it slowly took ad spending away from Google. It didn’t make Google obsolete, but it still cut its market share in half. By 2021, early Facebook investors were sitting on 800% gains.

As you can see, new technologies always usher in new advertising leaders. And the old guard often gets left behind.

I’m telling you this because eyeballs are changing focus once again. A new technology has emerged. And it can leave Google behind for good…

  1. This popular AI is coming for the digital ad space…

ChatGPT doesn’t sell ads… yet.

Right now, the popular chatbot generates revenues from subscriptions.

But to tweak a line from Fight Club, on a long enough timeline, every company sells ads.

Amazon (AMZN)Apple (AAPL)Netflix (NFLX)Uber (UBER)… and Walmart (WMT) pulled the ripcord. So will ChatGPT’s parent firm, OpenAI.

ChatGPT gained 100 million users in just two months. Fast-forward a few years… and I predict a billion people will interact with artificial intelligence tools like ChatGPT each month.

ChatGPT is already my go-to research tool for some tasks. You ask it a question, and it answers like an expert human. That’s better than going to Google Search and clicking on 10 blue links.

New habits take time to form, sure. But make no mistake, ChatGPT is coming for Google’s “homepage of the internet” crown.

In fact, data from investment bank Barclays shows ChatGPT is already stealing market share from Google “at an accelerating rate.”

And where eyeballs go, advertising dollars follow.

  1. “But Stephen, doesn’t Google have its own AI?”

Yes. More than two years ago, Google launched a ChatGPT-like system internally called Bard. Employees used it to debate philosophy and write screenplays in the style of Seinfeld.

Google developers pushed senior executives to release it, but they were scared.

Why? The chatbot didn’t adhere to its AI safety standards. Executives were afraid the AI would say something wrong or “politically incorrect.”

The two developers who created the chatbot ended up quitting as they were “frustrated they couldn’t get their AI tool out to the public.”

The duo then founded Character.AI. The startup, which lets you create your own personalized chatbots, recently notched a $1 billion valuation.

Put simply, Google had a massive AI lead, and it blew it. Now, it’s playing catchup… and it’s failing at that, too.

Google ended up releasing Bard shortly after ChatGPT launched. But even John Hennessy, the chairman of Google’s parent company, Alphabet, acknowledged the release was rushed and that Google “wasn’t really ready for a product yet.”

If you want reassurance Google blew its AI lead, give Bard a try.

Having spent several hours playing around with both GPT and Bard, I’m more confident than ever “peak Google” is in the rear-view mirror.

I’m not saying Google will go bust tomorrow. The company has deep pockets and is spending a ton of money on AI.

But until I see concrete proof Google can reclaim its lead in advertising, I’m avoiding the stock altogether. It’s on the wrong side of history.

Stephen McBride
Chief Analyst, RiskHedge

PS: Have you tried Bard yet? What was your experience? Let me know at stephen@riskhedge.com.

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