By Bill Alpert
I could have used some artificial intelligence on my trip to Spain last month. Wandering ancient streets, my medieval technology of maps and guidebooks led me to every tourist trap and dead end.
So I paid heed to AI demos this past week by Google and others, because befuddled travelers seem to be one of their favorite use cases. They showed off some smart travel tools, which just might head me in the right direction on my next trip.
Shares of Google parent Alphabet headed in the right direction immediately, as investors decided it had not fallen behind ChatGPT developer OpenAI and its partner Microsoft. Up 7% since Monday, Alphabet stock has shaken off fears that its 90% share of search activity might be eroded by AI rivals. Since early March, when those fears peaked, Alphabet is up 30% and Microsoft is flat.
Google's annual developers conference began Tuesday. OpenAI tried to cut in front with a Monday demonstration of its next-generation technology. This version of ChatGPT gives quick written or spoken answers when prompted in any combination of audio, visual, or text input. The new powers will appear in the coming weeks.
Come Tuesday, Alphabet CEO Sundar Pichai and his colleagues showed Google's own multimedia abilities, through its AI engine known as Gemini. AI assistants and advisors will be embedded across Google's ecosystem. Gmail will memorize your inbox and offer advice on your projects. Pixel smartphones will understand and track what their cameras see, reminding you where you left your glasses. Google Search now offers a summary overview of its long blue list of search results.
Pichai argued that Gemini AI will prove more useful than the competition because Google indexes a trillion current facts on the world and can hold a bigger bunch of facts about users as well.
The mega capitalizations of Alphabet, Microsoft, Amazon.com, and Facebook parent Meta Platforms suggest that investors anticipate a payoff from the $40 billion a year they're each spending to build AI infrastructure. But what will that payoff look like?
Travel is a good case study. It's one of the top five categories of paid search advertising, according to Morgan Stanley analyst Brian Nowak, and Google search is the first stop for travel planning on the internet.
Google's keynote session on Tuesday featured a travel tool that will draw on all the company's data on flights, hotels, local attractions, and weather -- not to mention your Gmail -- to plan and map out itineraries. If popular, such travel tools would create new placements for the search ads that bring Alphabet $200 billion a year.
On the same day last week, online travel agent Expedia was showing off an AI travel assistant it calls Romie to a Las Vegas gathering of business partners. Built with OpenAI's ChatGPT, Romie can plan trips and pop into group text chats with useful updates about flight changes. You can try it by visiting Expedia's EG labs website with your iPhone.
Booking.com has an AI trip planner that's also built on the OpenAI platform, with variants at its other websites like Priceline.
There are a lot of AI travel experiments out there.
"The runway is pretty crowded," says Natalie Bowman, a product manager at Alaska Airlines who's built AI travel tools for the carrier with both Microsoft's version of ChatGPT and Google's Gemini.
Its ChatGPT-based helper, Alaska Inspire, answers spoken or written questions -- even complicated ones like "Which flights to Europe can I buy with my frequent-flier miles?" The airline wants to see if the tool's ease-of-use turns more searches into bookings. It may also increase revenue per user by finding flights that are more suitable, but not necessarily the cheapest.
This summer, Alaska Airlines will roll out a more sophisticated tool that uses Google's AI. Features setting it apart from OpenAI's offering include interactive maps, immersive photos, and timely events at travel destinations. Google's latest version promises to let a traveler use a photo, video, or a piece of music to find associated places.
Bowman says her development group has toyed with letting searchers tell Google's AI to give its answers in a pirate's voice.
That's just what Alphabet bulls want to hear.
Alphabet's share of global online advertising has moderated from 75% in 2015 to about 55% today, according to MoffettNathanson analyst Michael Nathanson, with Meta and Amazon taking much of that share. But revenue continues rising at Alphabet because the world's digital ad pie is expanding. At the company's YouTube business, ad sales are growing 20% a year.
Alphabet has bought back stock and grown its per-share earnings at a low double-digit rate.
This past week, Nathanson named Alphabet to his firm's "best ideas" list. The stock is valued at the low end of the tech mega caps. Amazon trades for 33 times next year's earnings. Microsoft and Nvidia trade for about 30 times, while Apple goes for roughly 25. Meta and Alphabet are at the bottom of the pack, valued at 20 times next year's profit.
Nathanson thinks Google is more appropriately valued at 24 times. Using his estimate of $8.63 a share in core earnings for 2025, excluding losses from the company's side businesses, he thinks the stock can rise from $176 today to $205, a tidy 16% gain.
Write to Bill Alpert at william.alpert@barrons.com
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May 18, 2024 06:28 ET (10:28 GMT)
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