To The Moon

$Alphabet(GOOG)$ stock rose 4% on May 10th, reflecting positive feedback from the market regarding its I/O developer conference in 2023.

On the hardware side, Google confirmed the release of a new Pixel tablet, foldable Pixel smartphone and budget-friendly smartphone. They also showcased three colors of the Pixel tablet with a charging speaker base included, starting at $499 and shipping next month. Additionally, Google confirmed rumors about the upcoming release of their Pixel Fold foldable smartphone for pre-order at $1799 (with a free Pixel watch). This is seen as competition against $Apple(AAPL)$.

Investors are more interested in software updates. Last year's Google Workspace used AI functions over 180 billion times and AI is helping to take further steps such as "Help Me Write" which drafts entire emails from single prompts like customer service refund requests. Furthermore, Google Maps introduced an "immersive view," which provides deep 3D views of map routes while Google Photos' "Magic Editor" allows for advanced photo editing after-the-fact.

The highlight was PaLM2 - Google's latest large-scale language model that supports over 25 new products and features across more than 100 languages while allowing code writing. The company's AI conversational chatbot Bard has already fully integrated with PaLM2 and will be available to all users soon. Bard had been a focus during recent months competing against OpenAI under Microsoft (MSFT).

Regarding PaLM2: technical details can be found here https://ai.google/static/documents/palm2techreport.pdf or see this summary chart:

Investors were optimistic about this conference due to several reasons:

1) Duet AI - A response to Microsoft Copilot; it will integrate into Workspace including automatic meeting summaries for Docs/Sheets/Slides/GmailMeet etc.

2) Strong language model PaLM2 tested near or above GPT levels despite having fewer model parameters. While there is still a large gap in code/math abilities compared to GPT4, it has improved reasoning ability and Flan version's math ability slightly surpasses GPT4. A simple comparison chart can be found here:

Despite being the leader in browsers and search engines, Google was at a disadvantage due to the emergence of GPT. If Palm2 can help Bard reach GPT levels quickly, it will continue to solidify Google's position in search and advertising.

However, why does current Google resemble $Netflix(NFLX)$ when they first entered the advertising industry last year?

Because these uncertain factors make it difficult for analysts to estimate performance even within 1-2 years; therefore, there are variables in valuation models. For investors, either bearish or bullish views are dangerous as Google is a company with high market value that cannot experience sudden surges or drops from simple events - even though its 4% increase could be seen as catching up on "AI trends" missed earlier.

Investment Strategies

Hedge funds often take the approach of getting involved early, even if the model is not yet fully matured and commercialized, in order to "preserve value" and hedge their bets.

Currently, Google's main source of revenue still comes from advertising, so it will be more affected by economic recession expectations. However, unless recession expectations are clearly reflected in economic data, the market will not recklessly go short.

In this environment, selling some GOOG GOOGL PUT is a good strategy.

You can choose to sell PUTs that expire within 30-60 days and rotate them as necessary. If you're particularly bullish on Google's prospects, choosing a long-term vertical spread Call combination is also an option.

At the same time, in order to not miss out on any price movements for either Microsoft or Google stocks, you can also allocate positions for MSFT by simply selling PUTs (300-310) or taking a more conservative approach.