To The Moon

A year ago, if you wrote something nice about $Alphabet(GOOG)$ $Alphabet(GOOGL)$ , someone would respond with something like, “They’re cooked. Ever heard of ChatGPT?”

The sentiment around Alphabet CEO Sundar Pichai was about as bad as it could get. He didn’t know how to innovate. Google was terrible at making new products. A “woke” culture couldn’t win in AI (see early Gemini images).

Today, Google seems inevitable.

And I’m struck by how simple the answer was and continues to be as an investor. Buy Alphabets stock and just hang on for the ride!

The History of Disruption

The negative sentiment around Google was always about disruption. ChatGPT was first to “figure out” the AI chatbot, and that would disrupt search, Google’s cash cow, and the lynchpin of the business.

I never bought this thesis, but it was the consensus on Wall Street and in Silicon Valley.

So, how did OpenAI fail?

I think the simplest way to think about the disruption of any business is a simple question: Can the incumbent respond?

If the structural forces of a business are so strong that there’s no way for the incumbent to respond, you have something. For example:

• $Amazon.com(AMZN)$ offered simple online shopping and check-out, nearly infinite inventory, and “free” 2-day shipping 24 hours a day.

  • Brick-and-mortar retailers, which had inventory, physical stores to run, and margins to protect, had no logical way to respond until it was too late.

• $Netflix(NFLX)$ streaming was a seemingly infinite catalog available on demand content 24/7.

  • Cable still had time constraints, and cable companies have spent a decade delaying killing the golden goose that was cable TV in favor of streaming.

  • Hollywood knew Netflix had a strong hand and they folded without even a bluff.

• Remember checks? Credit cards were so much easier and more convenient for both shoppers and merchants that cash and checks are rare today.

  • Will blockchain’s speed and low-cost repeat the payment disruption?

The difference here is simple.

Google can respond.

Not only can Google respond, Google has infrastructure, technology, and distribution that no one can match.

But here’s the kicker. What if Google also got its product right more than OpenAI?

Google Understands Us

Yes, Google has a lot of data about billions of people. But what does it do with that data?

“ChatGPT knows me. I’ve been talking with it for years.”

I’ve heard arguments like this for years. Do you really talk to ChatGPT like a friend?

Am I the weirdo who thinks that’s weird?

That said, AI launches have always been weird to me. I didn’t get agents. I didn’t get why I would want an AI browser. When Claude announced Cowork, their FIRST EXAMPLE was organizing a chaotic desktop, and I thought, “THAT’S IT?”

I believe AI will be important and disruptive in the future. But I’ve been unimpressed by most AI products to date.

Chats integrated in company websites are obnoxious, and I find myself asking for a human at the first chance.

Agents…I don’t get.

So, what do I believe is a good product in AI?

I didn’t think my answer was going to be Google…but it is!

With Personal Intelligence, Google is taking all of the context from 20 years of data in Gmail, GSuite, YouTube, and anything else, and understanding me!

I can TOTALLY see myself asking what tires I need for my car!!! And the follow-up blew my mind. “What’s my license plate number again? To be honest, I have no clue!

THIS AI IS FOR ME!!!

The examples get better, too. I don’t want an agent to book travel for me, just “give me some ideas.” (#2 below)

What about looking for a new book? Again, understanding my context and preferences can lead the AI to better suggestions. Don’t do the shopping for me! (example #3 below)

What if Google doesn’t just understand us from an AI context perspective?

What if Google — the company — understands the AI products we actually want to use?

A Shorter Technology Bridge

Disruptive innovation that most people thought ChatGPT was bringing to the market was…disruptive.

It meant downloading a new app.

Interacting with devices differently.

Silicon Valley thought everything would change because they saw change up close. Coding has changed forever because of AI, so why wouldn’t the way we shop and the way we communicate and how we book travel change because of AI?

If your life is broken into 15-minute chunks and your personal assistant buys birthday presents for your wife and books your travel for you, AI would be a nice improvement!

But most people don’t live a busy Silicon Valley life.

They wake up and get the kids ready for school.

They want a good cup of coffee in the morning.

If friends have time, maybe they’ll get lunch or happy hour somewhere.

Maybe they go shopping to get out of the house or escape the office.

After work, it’s off to the gym or basketball practice or swimming.

On the weekend, how about sitting on the couch for 9 hours of football?

AI doesn’t improve any of these things.

Outside of coding, AI just isn’t that revolutionary. As an investor, AI can make reports for me, but the reports are like asking an undergrad to give a presentation about a company. There’s no nuance, no experience, no detail that I need.

AI makes content, but it’s not good content.

And here comes Google. They’re not trying to disrupt the way we work today. They’re trying to make it a little bit easier.

Google is about incremental improvements, and that’s probably what the broader world is ready for.

I think Google’s announcements this week — which are much more incremental than ChatGPT’s shopping agents — show that Google has the chops to make the products we want.

AI is incremental, not disruptive. In other words, this is a sustaining innovation.

The Snap Test

So, how does this play into financials?

The best analogy here is Snapchat, which was a major threat to Facebook and Instagram in the mid-2010s. But in August 2016, Instagram released Stories, heading off $Snap Inc(SNAP)$ ’s growth in North America (where the money is).

By 2016, Facebook and Instagram had more users than Snapchat, and they also had a business model that monetized users better than Snapchat.

An apples-to-apples ARPU (average revenue per user) comparison shows just how far ahead $Meta Platforms, Inc.(META)$ is. They stopped reporting this metric, but based on revenue trends, Meta’s ARPU lead has widened since 2023.

Multiply Meta’s ~10 more users and monetizing ~4x as effectively, and Meta has 40x as much revenue as Snap. All because Meta headed off Snap’s growth when the company was in its infancy.

The comparison may be magnified in AI because of the variable cost involved in serving answers.

OpenAI’s ~850 million users are impressive, but Google has 9 products with over 1 billion users, and Average Revenue per Earth Person (AREP) is $46.50.

If Google can cap OpenAI’s growth before OpenAI can build a profitable business model, it’s over!

OpenAI will be the Snap of this tech cycle.

I think we’re already there.

Google has won.

It’s over!

Now, we have to see how the OpenAI ecosystem is impacted. $NVIDIA(NVDA)$ $Oracle(ORCL)$ $Microsoft(MSFT)$ are some of the biggest companies in the world, and they’re reliant on OpenAI for growth.

My money is on Google, and I think it’s clear that’s the smart play long-term.

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