Google (GOOGL) marks an important milestone next month: the 20th anniversary of its initial public offering. The landmark IPO on Aug. 19, 2004, launched the hot startup on a path to becoming a tech powerhouse with a singular role in driving the web revolution. It also unleashed Google stock’s impressive run.
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From Search To Advertising, Will Google’s Big AI Bet Pay Off?
Fast-forward to 2024. Google is a $2-trillion-in-market cap behemoth whose valuation has soared nearly 100-fold since its IPO. And it is facing off with a new generation of trailblazing startups led by OpenAI, whose ChatGPT triggered the frenzy over artificial intelligence.
Google Stock: From Startup To Titan
In an industry known for scrappy startups disrupting tech titans, a question now hangs over Google: Will that happen again in the age of AI?
OpenAI burst onto the tech scene in spectacular fashion, akin to the way Google rocked the tech world two decades ago. But the Silicon Valley tradition of David vs. Goliath disruption is playing out differently this time around. Upstarts led by OpenAI rattled industry giants led by Google. Unlike 20 years ago, today’s tech titans are pushing back hard — and could fend off the challengers.
The powerhouses that Google went up against 20 years ago — such as IBM (IBM), Hewlett-Packard (HP) and Microsoft (MSFT) — “were all asleep at the wheel with the first internet revolution,” Robert Siegel, management lecturer at the Stanford Graduate School of Business, told Investor’s Business Daily.
“The big tech companies today are not asleep at the wheel,” he added.
Startup Disruption
The web was barely a decade old when Google, founded in a Menlo Park, Calif., garage, dazzled the tech world with a powerful search technology, dislodging Yahoo.
Louis Rosenberg, CEO of Unanimous AI, recalled how Yahoo “owned search and nobody thought they could be displaced.”
“Then Google happened,” he told IBD.
When Google started in business in 1998, the web was still in its first decade. Companies like Yahoo, Amazon and eBay were dominant. The search startup emerged rapidly as the new disrupter, which inevitably led to a strong buzz around an IPO. Google pulled the trigger shortly before its sixth birthday.
Google Stock Goes Public
“We will not shy away from high-risk, high-reward projects because of short-term earnings pressure,” founders Larry Page and Sergey Brin said in a “Founders IPO Letter.”
The company’s IPO filing underscored Google’s momentum as a young company.
“What was staggering about Google’s business was how big it was and how profitable it was,” Siegel of Stanford said. “Everyone was like, ‘Oh, my God, this is a really big business. And this is an amazing business that’s separated itself from so many other companies of the day.'”
Rosenberg of Unanimous AI said Google “captured the search market, rapidly and almost entirely.” And the company just kept going, as it “cut Microsoft’s stranglehold on productivity tools and email and browsers,” Rosenberg told IBD. “Google did something impossible.”
Google Stock: M&A Offensive
The Mountain View, Calif.-based company acquired Android in 2005, setting the stage for its big move into mobile computing. It bought YouTube in 2006 and then DoubleClick in 2007, which boosted its reach in digital advertising. In 2008, it launched Google Cloud Platform, paving the way for the company to join the ranks of Amazon and Microsoft as the top three cloud giants.
“I wouldn’t have predicted Google would be this big,” Sapphire Ventures President Jai Das told IBD. “If you go back and see who has won in a big environment and dominated from scratch, it’s only Google.”
IDC President Crawford Del Prete said Google’s expansion “dramatically changed the face of the tech industry.”
“The IPO set the stage for these innovations,” he told IBD.
Tech Startups Vs. Titans
Google’s rise was the typical story of Silicon Valley-style disruption. In the 1980s, startups led by Microsoft and Apple (AAPL) challenged giants like IBM and Hewlett-Packard when PCs took the industry by storm.
By the mid-1990s, Microsoft and Apple found themselves facing off with dot-com upstarts.
Some established companies fought back. Microsoft, which was criticized for being late to the web, faced off with Netscape, whose popular web browser and 1995 IPO ushered in the dot-com boom. The software giant outmaneuvered the startup in the so-called browser wars of the 1990s and early 2000s.
The Dot-Com Disrupters
But new powerful players emerged.
In one of the most stunning twists from the dot-com era, Google, the startup that made it easier to search the web, and Amazon, the online store that sold everything from books to toiletries, went on to outfox giants like IBM and Hewlett-Packard to dominate the enterprise cloud.
In 2012, shortly after Google’s 14th anniversary, then-CEO Larry Page told analysts on an earnings call: “At just 14 years old, we cleared our first $14 billion revenue quarter. Not bad for a teenager!”
Google Stock: Battle For AI Dominance
Google also moved aggressively into artificial intelligence, challenging IBM. For decades, Big Blue was considered the king of AI, known for supercomputers that beat chess champion Garry Kasparov and the Jeopardy champion. But IBM’s dominance didn’t translate into commercial success.
Meanwhile, Google moved steadily to take the lead in AI. In 2011, it launched an AI team called Google Brain, focused on deep learning, which uses artificial neural networks to record and process data and signals and then organizes the information much like human memory works.
Three years later, Google bought DeepMind, a London-based startup known as a trailblazer in deep learning.
King of AI
In 2016, DeepMind became an international sensation when its AlphaGo system defeated the world champion of Go, the board game that computers found difficult to master.
Like IBM, Google’s AI successes came across as impressive research projects that didn’t translate into commercial gains. Still, by 2020, Google, by then reorganized into the tech conglomerate Alphabet, was considered the new king of AI.
Suddenly, in late 2022, that all changed.
ChatGPT Rocks The World
The launch of ChatGPT on Nov. 30, 2022, highlighted the rise of generative AI, programs that tapped into massive amounts of data and computing power to produce high-quality content, including deepfake videos.
The launch turned the spotlight on OpenAI, a small startup operating out of a 100-year-old former luggage factory building in San Francisco’s Mission District. By January, ChatGPT had 100 million monthly active users, described as the fastest-growing app of all time.
The AI frenzy quickly drew the attention of investors, including Big Tech.
Google Stock: $100 Billion Blunder
In January 2023, Microsoft, which had invested in OpenAI previously, put an additional $10 billion into the startup.
The Microsoft offensive turned up the heat on Google. The company hit back by announcing on Feb. 6 the launch of its own AI chatbot called Bard.
It was a disastrous launch. The misstep underlined the stakes in the fast-moving AI brawl.
A promotional video on Bard’s capabilities included an inaccurate claim that the James Webb Space Telescope “took the very first pictures of a planet outside of our own solar system.” (A European telescope was actually first, according to NASA.)
The seemingly minor marketing blunder spooked Wall Street. Google stock plummeted Feb. 8, wiping out $100 billion of the company’s market cap in a single day.
Google declined to comment for this story.
Big Tech AI Rumble
The Microsoft-Google AI skirmishes in the first quarter of 2023 underscored how Big Tech was leading what Wedbush analyst Dan Ives called an “AI Gold Rush.”
Google bounced back from its AI fumble and mobilized its AI resources for a counteroffensive. The company merged DeepMind and Brain into Google DeepMind to “significantly accelerate our progress in AI,” CEO Sundar Pichai said in a blog post.
Google invested $2 billion in Anthropic, another AI startup, considered OpenAI’s key rival. Amazon also invested $4 billion in the startup.
Microsoft moved to grab a stake in another prominent AI startup, Inflection, joining other investors, including Nvidia, in a $1.3 billion funding round. Last February, Nvidia reported its first-ever 13F filing with the SEC that detailed its startup investments.
Big Tech, including Google, has led the recent AI-powered stock market rally.
Google stock has more than doubled since its February 2023 low after the Bard fiasco. The shares have rallied more than 30% year to date. Google stock has a Relative Strength Rating of 87 out of 99 and have traded above Google stock’s 21-day average since June after breaking out in April, according to MarketSurge.
It’s Big Tech’s Party
The AI gold rush was in full swing as 2024 began. Three AI-focused VC funds have each raised more than $1 billion year to date, a Q2 2024 PitchBook report said.
But a key trend emerged: fewer than anticipated AI IPOs. Another PitchBook analysis said, “The problem for VCs is that today’s titans of AI are quickly walling off opportunities from upstarts.”
Siegel of Stanford sees a downside to that trend. “It’s not good if the money ends up staying and the economic growth ends up staying with the large tech companies,” he said. “It’s bad when it’s too concentrated. It becomes too inbred. You want lots of startups and lots of ideas. Concentration ends up killing innovation.”
VCs remain focused on AI. Rebecca Wetteman, principal analyst at Valoir, said “fear of missing out” is propelling the trend, reminiscent of the dot-com years.
“Some things have not changed,” she told IBD. “There’s still plenty of VC and Wall Street FOMO driving investments in shiny objects. AI is just the shiny object du jour.”
Google Stock: Giants Lead The Charge
Former Cisco Systems (CSCO) CEO John Chambers, a veteran Silicon Valley figure, makes a notable observation about the frenzy over AI. Every major tech trend was typically led by a startup, from microchips to PCs to the web, he says.
“Every time, it’s been the new players who were the dominant players in the next generation,” Chambers, now CEO of JC2 ventures, told IBD in a 2023 interview. “It was rare and nonexistent where the leader in the prior one was one of the top three leaders in the next one, five or 10 years out.”
But the rise of AI “might be the one exception,” Chambers said.
“If you watch the nimbleness of Microsoft and Google and Meta and Amazon, they are all focused on this in a big way,” he said. “They realize they could get disrupted and they are the most economically powerful tech companies we’ve ever had.”
Das of Sapphire Ventures agreed: “A lot of these people saw what happened in the dot-com era. They’re not ready to let that happen.”
OpenAI Turmoil
Big Tech’s readiness to pounce on AI opportunities was underscored by Microsoft’s speedy response to the turmoil that hit OpenAI less than a year after ChatGPT launched.
In November 2023, OpenAI stunned the tech world by announcing that its board had ousted co-founder Sam Altman as its CEO.
A few days later, Microsoft announced that it was hiring Altman to lead the tech giant’s AI research team. Then came another twist: OpenAI announced that Altman was back as CEO.
The news shocked the tech world. Ives of Wedbush called it “a clown show.” Chambers said the OpenAI rift “probably got people nervous,” and underlined “how fragile they are.”
OpenAI IPO Chatter
The chatter about an OpenAI IPO has faded. It remains a major player in AI. But the titans are clearly leading the charge.
Some industry observers have speculated that Microsoft could gobble up OpenAI. Siegel doesn’t think that will happen. “I think (OpenAI) stays independent with this kind of messed-up structure, and it remains Sam Altman’s little playground,” he said. “I don’t think they get swallowed by Microsoft.”
In fact, on July 11 Microsoft announced that it was giving up its seat as an observer on the OpenAI board, saying it was “confident in the company’s direction.”
Google Stock: AI Backlash
Microsoft made the move amid heightened regulatory scrutiny of Big Tech’s ties with OpenAI and other leading gen AI startups, and growing concerns about AI itself.
Last year, Altman joined other tech leaders, including Google DeepMind CEO Dennis Hassabis and Microsoft Chief Technology Officer Kevin Scott, in putting out a 23-word statement warning against the “risk of extinction” from AI.
In June, current and former employees of OpenAI, Google DeepMind and Anthropic warned in an open letter that “AI companies have strong financial incentives to avoid effective oversight” of a technology that could do much damage, including “the loss of control of autonomous AI systems potentially resulting in human extinction.”
Earlier this month, OpenAI whistleblowers accused the company of imposing illegal restrictions on employees who wish to speak out on the risks of AI, according to a Washington Post report.
OpenAI could not immediately be reached for comment.
Who Will Win In AI?
Not everyone is convinced that Google will vanquish AI challengers. The winners in the battle over AI “will ultimately come down to trust and whom companies and individuals are willing to trust with their AI and their data,” Wetteman said. “There’s plenty of opportunities for Google and others to get it wrong.”
Allin of Fin Capital argued that Google is “dramatically behind Microsoft and others at this point as it relates to AI innovation in relevant enterprise use cases that are going to move the needle for their P&L.”
“Google was and always will be an iconic company that moved the needle in the internet and cloud innovation waves,” he said. “However, they did not get on the AI wave early enough and are now paddling from behind.”
At the forefront of the young upstarts, OpenAI remains a key player in AI, despite the bumps on the road. On July 12, Reuters reported that the startup is working on an AI program code-named Strawberry that’s capable of high human intelligence.
But it, too, faces questions, such as prospects for an IPO or if the startup can morph into another Google. “I don’t think they want to be in a Google path,” Siegel said.
Allin is bearish on OpenAI and other “generic” gen AI players. These companies “will not have a sustainable competitive advantage” given the “massive capital intensity” they need to move forward, he argued.
Waiting For The Next Google
So will there ever be another Google? Definitely, Del Prete of IDC said.
“As for new startups that can and will be disruptive, it will happen,” he told IBD. “The technology industry is always reinventing itself. Disruption can and will happen again, with the right idea.”
Siegel says AI will likely play out the way the dot-com era did 20 years ago. “We’ll have winners and losers just like we saw in the ’90s,” he said. “There will be speculation and there will be big flameouts.”
“We’re in the early days,” he said. “You and I can have this conversation in 10 years. There will be companies you and I will talk about that you and I don’t know about right now. This game is just getting started.”
And just like the tech giants it outcompeted 20 years go, Google should be on guard.
You can follow Benjamin Pimentel on LinkedIn and Twitter/X @benpimentel
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