Alphabet Inc. (NASDAQ: GOOGL | GOOGL Price Prediction) CEO Sundar Pichai told the BBC that no company in the sector is immune if the artificial intelligence (AI) bubble bursts. He admitted there are “elements of irrationality.” The statement harkens back to descriptions of the dot-com bubble, which knocked out hundreds of companies in 2000 and 2001.
Pichai acknowledged several short-term problems as the industry goes forward. High on that list is access to energy. In almost all cases, this is electricity. Pichai is not saying anything new. By some counts, total commitments to AI data centers across the global industry are nearing $3 trillion. There is no sign that has started to level off.
In the United States, the energy problem is acute. It can take years to build an AI server farm. This is happening during a period when large sources of electricity are needed right now. Utilities and financial companies have moved into the market to catch a piece of the financial prosperity that could accompany AI. However, if revenue does not materialize, they share the risks that companies like Alphabet, Microsoft, and OpenAI have.
So far this year, Alphabet’s stock has been a huge beneficiary of the AI craze. It is up 49%, against the broader market’s 13% increase. Granted, its core search business and YouTube have put up record numbers. Yet, investors are more interested in Alphabet’s AI success than its powerful legacy operations. Like other mega-tech companies, Alphabet has tens of billions of dollars on its balance sheet. In the AI war, even that is not enough. Alphabet needs partnerships and outside funding, which represents a risk all of its own.
Mega-tech stocks have started to sell off, although it may be temporary. However, investors are aware that AI is a financial high-wire act, which is both exciting and dangerous.
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