Can Alphabet Win the AI War with ChatGPT after the Botched Bard Debut?

Last week, we saw a lot of action in AI. While Microsoft launched the long-rumored ChatGPT-powered Bing, Alphabet also announced its own AI offering Bard. China’s Baidu also announced plans to bring chatbots to its search engine in China.

However, after Bard’s botched debut, Alphabet stock crashed. Can the Google parent win the AI war as ChatGPT continues to grow in popularity?

In Bard’s promotional video, in response to the question, “What new discoveries from the James Webb space telescope (JWST) can I tell my nine-year old about,” the AI-powered chatbot suggested that JSWT took the first pictures of a planet outside earth’s solar system.

Alphabet stock crashed after Bard’s botched debut

The answer is factually wrong and was immediately picked by many experts and media houses including Reuters. Grant Tremblay, an astrophysicist at the US Center for Astrophysics tweeted, “Not to be a ~well, actually~ jerk, and I’m sure Bard will be impressive, but for the record: JWST did not take ‘the very first image of a planet outside our solar system’”

After Bard’s botched debut, Alphabet stock lost around $100 billion in its market value. The company opened Bard for testing for “trusted users” last week only and hopes to open it to a wider audience in the coming weeks.

Sundar Pichai on Bard

In his blog, Alphabet CEO Sundar Pichai said, “We’ll combine external feedback with our own internal testing to make sure Bard’s responses meet a high bar for quality, safety and groundedness in real-world information.”

He added, “One of the most exciting opportunities is how AI can deepen our understanding of information and turn it into useful knowledge more efficiently — making it easier for people to get to the heart of what they’re looking for and get things done.”

Expressing optimism over AI and Bard, Pichai said, “AI can be helpful in these moments, synthesizing insights for questions where there’s no one right answer.” However, Bard’s debut shows that the chatbot still remains a work in progress.

Google employees criticize Pichai

Notably, Alphabet announced Bard just ahead of Microsoft’s event where the company was rumored to showcase ChatGPT-powered Bing. Microsoft did announce the service as was widely expected.

Meanwhile, after Bard’s disappointing debut, several Google employees have criticized Pichai. An internal meme that included a picture of Pichai said, “Dear Sundar, the Bard launch and the layoffs were rushed, botched, and myopic.” The post, which received many upvotes from employees added, “Please return to taking a long-term outlook.”

Employees also took swipe at Pichai for the layoffs. One such meme said, “Firing 12k people rises the stock by 3%, one rushed AI presentation drops it by 8%.”

Alphabet announced mass layoffs

Last month, Alphabet eliminated 12,000 roles in a bid to lower costs. Also, the company has lowered the bonuses of some top executives. The move came a couple of months after a key stockholder called upon the company to lower costs.

In November, TCI Fund Management, which owns around $6 billion worth of Alphabet shares, wrote a letter to the company calling upon the management to lower costs, trim losses in new businesses, set an EBIT target, and increase buybacks.

In its letter, TCI said, “An analysis by S&P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US. There is no justification for this enormous disparity.”

Most Big Tech US companies with the notable exception of Apple have announced mass layoffs over the last four months.

Can Alphabet win the AI war with ChatGPT?

Meanwhile, while Alphabet might have lost round one with ChatGPT, some analysts are not giving up on the stock yet.

Bank of America’s Justin Post said, “In our view, Microsoft won the week, with better product strategy and demos, while Google’s presentation felt reactive with little new news, and even included an inaccurate AI chatbot response.” He added, “We think Google’s big reveal is still to come, which we would expect in weeks and not months.”

Morgan Stanley analyst Brian Nowak also echoed similar views and said, “We believe GOOGL has the AI tech and scale to maintain/grow its leading user base.”

Notably, Google has anyways been facing strong competition amid a slowing digital ad market. Last year, the combined market share of Google and Facebook in US digital ad sales went below 50%.

Google needs to protect its turf from Microsoft

Meanwhile, some analysts advise caution even as they are optimistic that Google can protect its turf from Microsoft.

UBS analyst Lloyd Walmsley said, “To the extent MSFT shows any significant marketing support behind Bing, and if Google continues to delay, we might start to worry more about share loss and high decremental margins, but we are not overly concerned on this quite yet.”

Notably, YouTube is anyways facing a tough challenge from TikTok and the business has reported a YoY fall in revenues for two quarters. With Bing and ChatGPT looking to take market share from Google, Alphabet faces yet another headwind.

A section of the market believes that Alphabet was a bit complacent despite the looming threat from ChatGPT.

AI is the new battlefield between Alphabet and Microsoft

Gil Luria, senior software analyst at D.A. Davidson said, “While Google has been a leader in AI innovation over the last several years, they seemed to have fallen asleep on implementing this technology into their search product.”

Luria added, “Google has been scrambling over the last few weeks to catch up on Search and that caused the announcement yesterday (Tuesday) to be rushed and the embarrassing mess up of posting a wrong answer during their demo.”

All said, AI seems to be the new battlefield between Alphabet and Microsoft. It remains to be seen who wins the war but the first round seems to have gone to Microsoft.