It’s been sneakily edging higher, but the Nasdaq 100 index, which you can trade using the Invesco QQQ Trust ETF (NASDAQ: QQQ) rallied to new 2023 highs the week ended May 12.
While some of the top holdings, such as Microsoft Corp. (NASDAQ: MSFT), Nvidia Corp. (NASDAQ: NVDA) and Apple Inc. (NASDAQ: AAPL) took a small breather, following big run-ups in prior weeks, other heavily-weighted components including Alphabet Inc. (NASDAQ: GOOGL) and Amazon Inc. (NASDAQ: AMZN) picked up the slack.
Advertising As Revenue Driver
Shares of Alphabet jumped following AI news out of the Google I/O 2023 developers’ conference. The company reassured investors that advertising will remain its revenue driver, even as the company pivots to respond to challenges posed by OpenAI’s ChatGPT product.
OpenAI has already forged a deal with Microsoft, which reportedly has invested as much as $13 billion in the startup. Microsoft isn’t just a financier, though; the deal allows Microsoft to leverage the technology to enhance its products and services, including search.
Microsoft stock is up 18.13% in the past three months and 29.59% year-to-date, largely as part of broad enthusiasm for techs developing AI initiatives.
At its Marketing Live event on May 23, Google plans to roll out more details about its advertising strategy, as it applies to the growing role of generative AI.
Investors Waiting For News
Investors were waiting for Google to directly address the AI search quandary and were obviously pleased with what they heard. Alphabet stock was up 10.79% for the week, midway through the May 12 market session. Trading volume was 47% higher than average.
The stock has been languishing, relative to other big techs, such as Microsoft and Nvidia, which have put AI at the center of their growth plans.
While Google offers links for investors to find their own answers to search questions, ChatGPT provides direct answers to questions. While it’s true that ChatGPT’s accuracy could certainly be improved, that’s part of the Microsoft investment.
ChatGPT To Blame?
In addition, ChatGPT is threatening existing business models in a way Google isn’t, as evidenced by education company Chegg Inc. (NYSE: CHGG) blaming the generative AI tool for a decline in its sales and earnings.
Google has previously changed its search algorithms, resulting in loss of visibility for many businesses, but it now finds itself in the crosshairs of changes it didn’t initiate.
In a May 10 blog post, “Search Ads today and in the future,” Vidhya Srinivasan, vice president and general manager in the Google Ads group, put the company’s advertising golden goose in the context of AI initiatives. She elaborated upon experiments in Google’s search labs, called Search Generative Experience.
Dedicated Ad Slots
“With SGE, Search ads will continue to appear in dedicated ad slots throughout the page,” she wrote. “In this new experience, advertisers will still have the opportunity to reach potential customers along their search journeys. We'll test and evolve the ads experience as we learn more.”
Perhaps to reassure the company’s large advertiser base, she added, “Additionally, SGE, like other Search experiences, is designed to highlight and drive attention to content on the web.”
Concerns About AWS
Amazon, too, was a driver of Nasdaq 100 performance for the week. It’s also been underperforming big-tech peers in 2023, largely on concerns about underperformance of its cloud-computing platform, Amazon Web Services.
There was no specific news from Amazon, but the stock rose in tandem with Alphabet and the broader Nasdaq 100 on May 10 and 11. AWS is working to show its capabilities for enhancing its customers’ AI initiatives.
For example, in a May 3 blog post, “Quickly build high-accuracy Generative AI applications on enterprise data using Amazon Kendra, LangChain, and large language models,” a team from AWS offered detailed steps for developers to address challenges related to natural language processing.
While complex instructions for developers aren’t market movers in and of themselves, Wall Street may be warming up to Amazon’s moves to maximize opportunities from AI.