Investor Bill Ackman (Trades, Portfolio), through his hedge fund Pershing Square, made changes to his portfolio according to the latest 13F filing on Aug. 14, 2023. One notable addition to his holdings was Alphabet Inc. (GOOG, Financial) with a weight of 11% in his equity portfolio. This represents a significant increase of 28% in the value of Alphabet in relation to his total portfolio. This is not a new position for Ackman, indicating he has been gradually accumulating shares since March 31.
Search Generative Experience
Alphabet has been at the forefront of incorporating artificial intelligence into its search engine to enhance the user experience. The latest development in this area is the Search Generative Experience, which aims to revolutionize the way we search for information online. CEO Sundar Pichai has expressed his excitement about the potential of SGE and the positive feedback it has received from users.
SGE is built on the foundation of generative AI, which allows Alphabet to think outside the box and provide users with deeper and broader information. Pichai highlights that SGE has significantly improved the quality of search results, making it a clear win in terms of user satisfaction. The introduction of SGE also opens up new possibilities for commercial user needs, providing opportunities for merchants and advertisers to better serve their customers.
One of the key advantages of SGE is its ability to cater to different content types in a seamless manner. Pichai draws a parallel to the success of universal search, where users responded positively to the integration of various content types. With SGE, Alphabet aims to provide a multimodal search experience that excites users and meets their evolving needs.
The early results of SGE have been promising, with improved efficiency and reduced latency. Pichai is confident the technology is on track to become the next major evolution in search. While the transition to SGE is a deliberate process, Alphabet is committed to bringing this new search experience to more users over time.
A question of advertising monetization
SGE undoubtedly comes at a much higher compute cost per search than Alphabet’s previous technology. Analysts have serious questions about it and Microsoft Corp.'s (MSFT, Financial) ability to monetize search while maintaining current margins.
From an advertising perspective, generative AI has the potential to significantly enhance the effectiveness of Alphabet's ad products. Philipp Schindler, bhief business officer at Alphabet, emphasizes that AI-powered advertising tools can help advertisers make better decisions, solve problems and enhance creativity. The integration of AI into its ads has already seen positive results, with features like conversational experiences and automatically created assets being well-received by customers.
However, there are concerns about the monetization of SGE in the short term. Lloyd Walmsley, an analyst at UBS, raised the question of how Alphabet plans to address this issue as SGE is scaled up. Schindler acknowledged the concern, but believes the long-term benefits of a more useful product will outweigh any short-term headwinds. He emphasized that AI is a foundational component that allows Alphabet to help users and advertisers at scale.
The impact of generative AI on advertising is expected to be significant. Mark Mahaney of Evercore ISI asked Schindler about the areas where generative AI will have the most impact on advertising customers. While Schindler did not provide specific details, he mentioned the company is focused on improving bidding, targeting, creatives and innovation through AI. He also highlighted the exciting new innovations in automated asset creation that are in the pipeline.
The lack of details may indicate a lack of a plan. We must remember, though, the best software development relies on agile project management because long-term planning is often less valuable when you are doing something nobody has ever done before.
Google Cloud
Google Cloud experienced continued growth and success in the second quarter of 2023. Pichai highlighted the positive performance of Google Cloud during a recent earnings call. He mentioned that it generated $8 billion in revenue, representing a 28% increase compared to the previous year.
Pichai emphasized the importance of AI in driving the growth of Google Cloud. He mentioned that Google Cloud's AI-optimized infrastructure is a leading platform for training and serving generative AI models. More than 70% of generative AI unicorns, which are startups valued at $1 billion or more, are Google Cloud customers. This demonstrates the trust and confidence that businesses have in Google Cloud's AI capabilities.
Google Cloud offers a wide range of AI models and platforms, including Vertex, Enterprise Search and Conversational AI. Pichai highlighted that Google Cloud has over 80 models across these platforms, which are being translated into deep industry solutions. This allows it to provide tailored AI solutions to various sectors, such as travel, marketing and finance.
YouTube
In the ever-evolving world of digital advertising, YouTube continues to be a dominant player, driving growth and innovation in the industry. The latest financial report from Alphabet, the parent company of YouTube, highlights the platform's strong performance in the second quarter of 2023.
YouTube's revenue from ads saw a 4% year-over-year increase, fueled by growth in brand advertising and direct response campaigns. The platform's success can be attributed to its multi-format strategy, which enables creators to produce diverse content and provides advertisers with a range of options to reach their target audience.
One of the key areas of focus for YouTube is Shorts, a feature that allows users to create and share short-form videos. Momentum remains strong for Shorts, with increased watch time and monetization. In fact, brand advertisers can now test Shorts ads for awareness campaigns, opening up new opportunities for businesses to engage with users in a more efficient and cost-effective manner.
At the recent Brandcast event, YouTube announced two new ad offerings for streaming. First, 30-second unskippable ads will be available on YouTube Select, which receives the majority of impressions on TV screens. This move brings YouTube's advanced audience capabilities and extensive reach to a format that has long been a staple in the TV industry. Additionally, YouTube is exploring new pause experiences, allowing brands to drive awareness or action when users hit pause on a video.
The success of YouTube as an advertising platform is not limited to revenue growth. Measurement partners such as Nielsen Holdings PLC (NLSN, Financial), TransUnion (TRU, Financial) and Ipsos SA (IPSOF, Financial) have consistently found that YouTube delivers higher return on investment compared to TV and other online video platforms. This has been demonstrated by The Hershey Co. (HSY, Financial), which saw a significant increase in return on investment by optimizing its YouTube strategy, leveraging CTV, AI-powered formats and platform-specific creative.
Conclusion
Pichai and Chief Financial Officer Ruth Porat highlighted Alphabet's focus on revenue growth, expense management and investment in AI-powered tools and solutions.
Google Cloud's performance in the second quarter of 2023 demonstrates its continued growth and success. The company's focus on AI and its ability to provide tailored solutions to various industries have contributed to its strong revenue growth.
As YouTube continues to innovate and evolve, it remains a valuable platform for both creators and advertisers. With its multi-format strategy, focus on Shorts and CTV and commitment to delivering results, YouTube is driving growth and shaping the future of the advertising industry.
With a robust partner ecosystem and a commitment to innovation, Google Cloud is well-positioned to maintain its momentum and drive further value creation in the cloud computing market.
