Head of Saxo Strats
Summary: ChatGPT is an impressive technology and has fascinated many people with even the idea that it could become the new Internet or even be end of Google's search engine. We take a look at the ChatGPT technology and whether it is a real threat to Google given that Google's DeepMind is already coming up with their own competitor to ChatGPT.
What is ChatGPT and why has it become so popular?
Microsoft has recently invested $10bn in OpenAI, the company behind the hyped ChatGPT, and is keen to roll the technology out across its various product. Before we answer the question of whether OpenAI’s ChatGPT could be the end of Google as we know it we must explain some things about ChatGPT.
It is not revolutionary to produce a chatbot which can reply to questions from humans, and we already have AI technology integrated in many different applications – so what have made ChatGPT so popular in such a short time? It is one of the first AI technologies which is easy to understand and to interact with for the general public. The difference from other chatbots is ChatGPT’s ability to respond in a language which is difficult to distinguish from a chat with a real human being. And it is trained on a much larger dataset with massive computational power, making it far superior to other chatbots. The cost of offering such a service to the general public does however not come without cost which may also be one of the reasons why some of the earlier chatbots have not been presented to the general public. The estimated cost of running ChatGPT is around $100,000 per day with each word generated on ChatGPT estimated to cost $0.0003, so it’s not a cheap exercise for ChatGPT.
Will ChatGPT be the end of Google’s search engine?
Will ChatGPT become a replacement for Google – or even the internet as Microsoft’s CEO said on the Q4 2022 earnings conference call? ChatGPT is a machine learning model trained to generate text on a given input, where Google is a search engine designed to find information on the internet through relationships of links between websites. Whereas Google is able to find information which has been posted recently, ChatGPT needs to be re-trained on new data containing this information, which can be a computationally heavy process. It is illustrated with our interaction with the current version of ChatGPT, clearly demonstrating limitations in the input data:
From ChatGPT from Jan 25, 2023. Statement from us on top, answer below.
And a similar request using Google:
From Google, Jan 25 2023
What Google does which ChatGPT cannot/does not do:
Google’s DeepMind is racing towards their competitor to ChatGPT
DeepMind, which is a subsidiary of Alphabet (the parent company of Google) working on AI technology, and is one of the leading research groups within AI. Alphabet/Google has most likely been very frustrated by being outpaced by OpenAI on ChatGPT and demanded DeepMind to allocate ressources to come up with their own version. DeepMind recently announced an upcoming launch of their ChatGPT competitor called Sparrow which could be released for a “private beta” in 2023. Sparrow is expected to value factual accuracy higher, as well as having the ability to cite specific sources of information.
ChatGPT is has truly revolutionized many types of information queries and other types of tasks, but it remains very doubtful that it could be a replacement for Google, nor being a new phase of the internet. The fact that the technology is not patented and is being replicated by DeepMind, and maybe also Baidu in China, indicates that ChatGPT while impressive has succeeded in solving the engineering problems behind the technology. But if other technology companies can make their own versions the business value is less unique. In any case, Microsoft spent less than 1% on an option in AI technology.
Alphabet’s share price was down 44% from its peak to bottom, but this year its shares are up 12% following the rest of the technology sector. The ChatGPT and the narrative around it being the end of Google’s search business had a short-term meaningful impact on sentiment. But we believe the threat is overrated and that Google’s search business will continue to flourish in the years to come. Alphabet is valued at a free cash flow yield of 6% which is the yield observed since the financial crisis and underscores the low expectations that have been built into the stock price.
2024: The wasted year
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
