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Alphabet, Inc. (GOOG) thrilled shareholders in its recent quarterly earnings report, showing itself as a large, mature growth company that can still deliver remarkable earnings growth strength in its core businesses, while cultivating a stable of “other bets” with great potential. GOOG, along with other U.S. tech leaders, will eventually come under greater regulatory scrutiny, and we’ll discuss that prospect in next week’s letter.
This week, though, we wanted to mention a significant development in one of GOOG’s “other bets” — the part of the reorganized firm that covers all their apparently outlandish efforts in everything from self-driving cars to internet-by-balloon for the developing world.
Back in March, we wrote about GOOG’s DeepMind — a British artificial intelligence firm that GOOG acquired in 2014. In late 2015, a DeepMind program, AlphaGo, succeeded in defeating a professional player of the Asian strategy game go, a notoriously difficult and complex game that had resisted the AI onslaught far longer than chess. (Chess, you may remember, fell to the robots when IBM’s Deep Blue defeated Garry Kasparov in 1997.) AlphaGo’s victory came as a surprise even to AI analysts. It was a remarkable indicator of the power of machine learning and deep neural networks.
World Go Champion Ke Jie Contemplates the Future of Humans In An AI World
The next generation DeepMind go program defeated the world champion earlier this year. A paper just published in Nature described how “AlphaGo Zero” was able to do it without ever seeing a human play a game at all. Instead, it played against itself, starting from the rules alone and discovering what worked by beginning from pure random moves.
After 40 days and 30 million games, it had become a superhuman go player — as far beyond the world champion as the world champion is beyond a rank amateur. The programmers watched in fascination as within days it rapidly recapitulated thousands of years of the game’s development — discovering well known plays and gambits, and then developing ones of its own that had never before been seen.
The significance of this development is that the program learned from scratch. Previous machine learning has required human-curated data sets to be provided by human experts, obviously a significant expense in time and money. The company hopes that the same technology can now begin to be deployed on more socially and scientifically significant problems. Certainly, GOOG will be applying DeepMind AI for many purposes across the firm — it is already being used to cut energy costs at data centers.
Investment implications: Artificial intelligence continues to make great strides. The theme remains a powerful one, and we like both software and hardware firms. Some of the U.S. tech giants with strong AI programs may come under pressure from regulators, and this is a development that we will monitor carefully, since when they do, their price-to-earnings multiples will likely begin to erode. Please note that principals of Guild Investment Management, Inc. (“Guild”) and/or Guild’s clients may at any time own any of the stocks mentioned in this article, and may sell them at any time. Currently, Guild’s principals and clients own GOOG. In addition, for investment advisory clients of Guild, please check with Guild prior to taking positions in any of the companies mentioned in this article, since Guild may not believe that particular stock is right for the client, either because Guild has already taken a position in that stock for the client or for other reasons.
To learn more about Guild Investment Management, please go to www.guildinvestment.com.