Dan Niles: Google will have the best AI app in the longterm

Core Viewpoint - Alphabet's stock has increased by approximately 4.4%, attributed to its strong performance in AI applications and the success of its app, Nano Banana, which surpassed Chat GPT in the US free app store rankings [1][3][5]. Company Analysis - Alphabet is expected to lead in AI applications due to its vast data resources, particularly from YouTube, which provides a significant advantage in developing AI technologies [2][3]. - The company is trading at a market multiple of 25 times, which is lower than Meta's 27 times and AI companies in the 30s, indicating potential for growth [4]. - The recent antitrust remedies have allowed Alphabet to maintain its position without needing to divest any divisions, positioning it favorably for the next 5 to 10 years [4]. Competitive Landscape - OpenAI faces challenges due to its lack of substantial cash flow-generating businesses compared to competitors like Microsoft and Google, which can fund their AI developments [7][8]. - The dominance in AI will likely be held by companies with access to large datasets, such as Alphabet with YouTube, Meta with Instagram and Facebook, and ByteDance with TikTok [9][10]. - The market may not sustain all current players, as historical precedents show that early entrants do not always secure long-term success [12][15]. Industry Trends - Over the past three years, major tech companies have invested approximately $825 billion in capital expenditures, raising questions about the returns on these investments [14]. - A significant number of companies investing in AI have reportedly seen little to no return, indicating a potential market correction as investors seek to identify dominant players [15][16].