VALUE: After Hours (S07 E18): AI: The End of ‘Search’

During their recent episode, Taylor, Carlisle, and Tim Travis discussed AI: The End of ‘Search’. Here’s an excerpt from the episode:

Tim: Yeah. Nvidia has bounced a lot. That went in the 80s, I believe. And now, it’s at 135. So, some of those have had pretty big runs. Microsoft. The Mag 7 one that I think the value guys are attracted to, including me, is Alphabet. I think that one’s trading at a pretty attractive multiple. I get the bear case. AI obviously is going to have a major impact on search. It reminds me a little bit– I was thinking about this today at the gym actually, was reminds me of when Microsoft had to transition to the cloud and people were like, “Whoa, all these software applications, how are they going to transfer to the cloud?”

Honestly, that was in my too hard pile at that time. I didn’t really understand it that well as I should have, but I feel like there’s a good chance that Alphabet will be able to parlay all the different things that they’re into and be still really, really competitive. And the valuation has obviously come down quite a bit, so they might be able to play some offense too. So, I like that stock.

Tobias: Yeah. Without having looked too deeply at it, I tend to agree. There is that risk that people just aren’t searching. And so, if your interface with all of the internet is now through an AI chat window.

Tim: You don’t search anymore? I still do.

Tobias: We’re not the kids. We’re the wrong generation. I think you want to– [crosstalk]

Tim: Well, that’s true.

Tobias: We use the desktop. The kids don’t use a desktop. They do everything through the cell phone.

Tim: Yeah, it’s like TikTok.

Tobias: I typed it into the search bar.

Tim: It’s all TikTok.

Tobias: Well, I heard an interesting stat over the weekend that– So, previously, Google used to trawl and they would deliver a click for every two hits on a page and then that’s changed to about a click for every six hits on a page, which is the click is the thing that translates into ad revenue for the content provider. So, you need to click–

Jake: Are people just getting their answers now in the Gemini box above?

Tobias: Yeah.

Jake: Okay.

Tobias: But for ChatGPT, it’s one in 1,500. There’s one click for 1,500 web crawls. So, that content provider being supported through ad services seems to be like– that seems to be going away.

Jake: Yeah. It was always a bit of a strange bedfellow to have the advertising along with information together, and it had to come in a package with Google. You’re always serving two masters. The user who you’re trying to provide answers to and then the company who’s trying to buy eyeballs and you end up with some– you have to make tradeoffs there.

Tim: If they’re for profit, the AI companies are going to run into that same issue. They’re going to want to do the same thing, because it’s going to make sense to the bottom line, just like TV.

Jake: [crosstalk] a long enough timeline, everyone sells advertising.

Tim: Right. Exactly. Exactly. Like, TV commercials. yeah, they pitch what they’re incentivized to pitch. Pharmaceutical commercials. So, I don’t know. I would think that that’ll continue. It’s trillions of dollars. It’s just trillions of dollars in that market.

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