Meta and Alphabet: How GOOG and other future tech firms will change the world in 2023?
By Jenny McCall
12:30, 6 January 2023
When Tim Berners-Lee invented the World Wide Web in 1989, a year synonymous with the fall of the Berlin wall and Nintendo released the Game Boy, Apple’s share price was $0.25, and technology was about to embark on a revolutionary journey - which would ultimately change the world.
We have come a long way since 1989 and now companies like Meta (META) and Alphabet (GOOG) are leading a new tech revolution.
Tech firms have grown exponentially over the last three decades - albeit 2022 was a poor year for many tech stocks, with Apple (AAPL) shedding $1trn from its market capitalisation, alongside Amazon (AMZN) and Meta's share price fell by 64% in 2022.
But despite these challenges, brought about by high inflation, declining consumer confidence and a strong US dollar, tech companies are still innovating and many of those firms will play a leading role in changing the world in 2023.
What is your sentiment on META?
Meta (META) share price chart
How should investors approch the new tech gravy train?
In an exclusive interview with Capital.com, Sebastian Mallaby, author of The Power Law: Venture Capital and the Art of Disruption, he discussed some of the technologies, sectors and companies that could change our world in 2023 and beyond.
“The top one I would mention is Artificial Intelligence (AI). I think that technology has reached a moment of maturation where the cutting-edge science has advanced so much that you can now commercialise it.”
“We've seen products like AlphaGo, demonstrating a machine intelligence that people didn't expect. Meta just released one, an AI that could win at diplomacy, which is a game that has a component of negotiating with other human beings. So that's very impressive.”
It’s not just Meta and AlphaGo that stand to reap the benefits of AI and revolutionize this space.
With PwC already forecasting that AI is expected to contribute $15.7trn to the global economy by 2030, and with AI researchers already predicting that there is a 50% chance machines will outperform humans in all tasks by the year 2060 – tech giants and sectors have noticed the power of this new technology.
Let’s take the healthcare sector - as one example. AI can be used to assess massive data sets more accurately, as well as diagnose and treat diseases more quickly.
Then there are driverless cars, AI has already started to revolutionise the space, with companies like Tesla (TSLA) taking advantage of this new technology.
But how should those who want to invest approach this arena and ride this new gravy train?
Well, Mallaby believes one idea to trading – especially if you’re restricted to public markets, is to focus on mature companies in any sector, who are adopting this infrastructure the fastest.
“It's going to give them an edge. if you take banking, for example, and you line up the big American banks and you say which is best in AI. And, you know, you go long on that, and you go short on the laggard. That would be a public market way of trading it,” Mallaby said.
The big players, like Microsoft (MSFT), META and GOOG, are ploughing large amounts of money into AI companies, or adopting these technologies themselves within their own businesses. But this doesn’t come without its challenges.
Tesla (TSLA) share price chart
Challenges to investing
Most larger companies that are investing in new technology - like AI, are publicly traded organisations, as a result they ae subject to market whims.
A further hurdle is that some firms are now coming to market as mature operations. So, the opportunity of a challenger company debuting with less investment is rare.
And there is more bad news for public market investors.
“Venture capital and the world of private investing is spreading enormously. It used to be that a company like Amazon would get some venture capital. Then if it was doing well, it would go public maybe in a couple of years at a valuation of like $400m and then public market investors could go buy it,” Mallaby explains.
“But venture capital people have said, ‘wait a second, we think we'd rather keep those profits to ourselves.’ And so, they've invented this thing, growth, equity, where they provide follow on rounds of capital.”
Mallaby says this means that the Amazons of today are not going public at $400m market cap. They're becoming unicorns, which is where they’re worth $10bn. And then they're becoming DECA unicorns and they're staying private.
One such example and was announced this week, of San Francisco-based company, OpenAI, which was co-founded in 2015 by TSLA main man, Elon Musk. OpenAI is reportedly in talks to raise capital at a valuation of almost $30bn. In 2021, the company was valued at $20bn.
This deal comes at a time when most tech companies are preparing to make big cuts and investors are backing away from making any new deals.
OpenAI is the developer behind AI bot ChatGPT, which is a tool that lets users type questions using natural language, to which the chatbot will reply with conversational tone answers.
But there is still a risk to this deal going through, reports indicate that discussions are still being held, plus over the last 12 months many tech-start-ups have had to cut costs due to the stock market slump and according to data from PitchBook, venture capital acquisition deals have fallen below $1bn for the first time in more than a decade.
Competition between small and big players
There are also further complications associated with these new tech start-ups.
OpenAI maybe far away from perfection, but its capabilities are a red flag for the likes of GOOG.
As mentioned, ChatGPT can respond to user questions with summarized information. Compare this to Google, which allows the user to search for information but presents internet links that the user must search through to get the information they need.
GOOG does this because it gives them the chance to also display ad links, and Google’s advertising amounted to $209.49bn in 2021.
With OpenAI promising users a new way of finding information, it could present an opportunity for investment and could cause investors to grow weary of GOOG and its future share price growth.
Alphabet (GOOG) share price chart
How should investors approach this?
Would it be right to invest in these new companies like OpenAI once they are public or focus on the bigger players – like META, which are also diversifying its offering and heading into the AI space?
“The obvious strategy is you wait until things do go public and then you figure out which of the ones that really have a lot of runways in terms of mature technology,” Mallaby said.
But don’t rule out the big guns either.
“Amazon, Google, any of these guys, even if you had not bought them until they were worth $10bn, there was nothing but upside. So, I think you can still buy these stocks.”
Mallaby uses the car sector as an example for investors seeking out companies that are driving the future of tech. Highlighting that investors already know which manufactures are going to figure out electric or driverless cars first and these are the companies they should perhaps focus their investments around.
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