The launch of ChatGPT at the end of 2022 was a watershed moment for the tech industry. Many of the names under the ‘FAANG’ stocks umbrella, which included Microsoft, Meta, and Alphabet (NASDAQ: GOOG), became known as the Magnificent 7. Crucially, Nvidia was added to the list. But with the initial AI gold rush over, the industry finds itself at a crossroads.
Innovation
One of the biggest challenges the tech industry faces at the moment is a sense of purpose. Go back 15 years, and the likes of Google upended traditional business models with their relentless innovation. Its vision of ‘Organising the world’s information’ was so simple and yet so powerful.
Today, though, these same businesses have lost their entrepreneurial mindset, more content with moving chess pieces around the board in search of a killer AI app. Apple, for example, hasn’t innovated in years. New iPhone model releases no longer capture the public’s imagination. At the same time, the business struggles to find ways to integrate AI features into its phones.
Disruption
Fifty years ago, the pace of corporate renewal was somewhat glacial. Large corporations with financial muscle would introduce incremental innovations. The dawn of the internet changed all that. Exponentially growing technologies empowered the rise of the ‘garage’ entrepreneur. That is, after all, how the likes of YouTube started.
But even this phenomenon is now reversing. The mantra of generative AI and large language models is that bigger is better. More computing power translates into better models. But the cost of Nvidia chips is so exorbitant that only the mega-cap companies can play in this space. It’s little wonder that DeepSeek spotted an opportunity.
Search engines
As the AI technologies evolve and begin to solve more and more challenges, one of the companies that could be most disrupted is Google.
Google’s dominance in the search engine space is unparalleled. Even deep-pocketed Microsoft with its Bing search engine couldn’t break through.
However, the stock fell heavily last week. This was after a senior Apple executive disclosed that Google searches on Apple’s mobile Safari browser fell in April, for the first time. Google immediately responded with a statement to the effect that it continues to see search engine growth from Apple’s devices and platforms.
Its absolute dominance in the search engine market has now caught the attention of regulators. Recently, it lost two federal antitrust cases, demanding its break-up.
Over the last few months, I am sure you have noticed AI-generated summaries atop search results. Open AI may be in the middle of its own identity crisis, but more and more people are turning to its free tools to answer everyday questions on virtually any topic.
Today, marketing officers are trained on search engine optimisation (SEO) techniques. That’s the whole basis upon which they market their business and ensure that it always appears towards the top of any Google search.
I am not saying that Google’s entire business model is finished. But for the first time in its history, its business model is under real threat. Since the sell-off, the stock is now the cheapest among the Magnificent 7 stocks, based on a price-to-earnings ratio. But I am not buying, not until I see real evidence that it is capable of being a disruptor all over again.
