Did the Market Overreact to Google’s Bard AI Presentation?

Key Points

• Alphabet-owned Google botched its Feb. 9, 2023, presentation of its Bard AI chatbot presentation.
• Alphabet shares fell over (9%), making it the worst two-day decline since 2008.
• In the two days, alphabet shares lost ($160 billion) in market capitalization.
• Google owns 90% of web search servicing over 8 billion daily queries compared to 900 million for Bing.
• GOOGL shares trade at 18.5X forward earnings.

In an attempt to counter Microsoft Inc. NASDAQ: MSFT presentation of the integration of OpenAI ChatGPT with its applications, search engine giant Alphabet Inc. NASDAQ: GOOG owned Google hastily unveiled their Bard AI chatbot. The market gave its verdict when MSFT stock climbed while GOOGL stock plummeted.

Investors ponder where the dramatical sell-off in GOOGL shares may be an overreaction. The contrast between the presentations was night and day. While Microsoft may have gotten the lead in the AI wars, analysts have said that Google has the edge with 90% of searches. It has the most robust data needed to power and improves AI technology.

Microsoft’s Event

Microsoft held an event on Feb. 7, 2023, showcasing the integration of OpenAI ChatGPT into its Bing search engine and Edge browser. Microsoft provided demonstrations of the added value AI brings to searches and browsing. One demonstration showed Bing could pull a 16-page earnings report for the Gap, Inc. NYSE: GPS.

It then asked the AI to point out the key takeaways from the report, which it performed by posting bullet points.

It was an enhanced version of ChatGPT, as the current free version doesn't provide specific financial data. When asked about the latest GPS earnings report, it responded, “I'm sorry, but I don't have information on the latest earnings report for GPS. It's important to note that my training data only goes up until 2021, and I do not have real-time information on financial data such as earnings reports.”

Google’s Hasty Retort

On Feb. 8, 2023, Google gave a live presentation from Paris, France, revealing its own AI chatbot, Bard. Google described its AI conversation technology LaMDA but gave very few demonstrations of Bard at work. In an embarrassing moment, a presenter was caught off guard when trying to demonstrate Bard on a smartphone but nervously laughed, “We’re missing the phone... We can’t find the phone.”

This set the tone for a hasty demo. They covered augmented reality with Google Maps and somehow linked it to being AI-powered during a demo of someone trying to find a coffee shop. There was very little in terms of seeing Bard AI in action, just promises of innovations.

Bard AI Advertisement Disaster

Google released an advertisement demonstrating the Bard chatbot hours before the live Paris event. The ad shows Bard answering the question, "What new discoveries from the James Web Space Telescope (JWST) can I tell my 9 year old about?" Bard's responded with several answers. However, it's botched the last answer "JWST took the first pictures of a planet outside of our own solar system.

These distant worlds are called “exoplanets.” Exo means “from outside” NASA confirmed this to be false, and the actual first pictures of exoplanets were taken in 2004 by the European Southern Observatory's giant telescopes. That started the stock collapse, which continued for the next two days. The reaction appears to be overdone, but a falling market will mute any bounce attempts.

Daily Cup and Handle Breakout Retracement

The daily candlestick chart on GOOGL illustrates a daily cup and handle breakout. GOOGL formed the lip line on Dec. 13, 2022, as shares fell from $99.53 to a low of $84.86 on Jan. 6, 2023. Shares formed a rounding bottom and staged a rally on the daily market structure low (MSL) buy trigger breakout through $90.22.

The lip line was retested on Jan. 23, 2022, before pulling back to $94.42, forming the handle low. GOOGL eventually broke out through the lip line on Feb. 1, 2023, with a large gap opening at $105.80 on its earnings release and anticipation of the AI event from Paris.

GOOGL shares chopped above the gap level peaking at $108.18 on the day before the event Feb. 7, 2023. GOOGL started its tumultuous collapse the following day on Feb. 8, 2023, as shares collapsed (-7.68%) to $99.37 in reaction to the botched Bard advertisement and live stream from Paris.

The selling accelerated on Feb. 9, 2023, as shares fell another (-4.29%) to close at $95.01 on a massive 120 million shares of volume. GOOGL fell a third day to hold the daily 50-period moving average (MA) at $94.28 as it closed at $94.57 on nearly 55 million shares.

The daily stochastic is falling to the 40-band as volume starts to fall. Pullback support levels are at $91.61, $90.22 daily MSL, $87.44, $85.83, and $84.86 swing low.