One of the world’s richest men believes that developers are one killer app away from disrupting Google
GOOG
GOOG
AMZN
Bill Gates reiterated in May that truly smart, personalized digital assistants will change everything about how way we interact with computers, potentially disrupting tech’s biggest firms. He’s right.
Investors should buy Arista Networks
ANET
There is a lot of buzz around generative AI, and Chat GPT in particular. The chatbot built by Open AI is widely perceived as superior to anything made by Google. A big part of this narrative is the first mover advantage.
Chat GTP holds the distinction of the being the fastest software app to reach 1 million unique users, a feat achieved only 5 days after launch, according to a report at Reuters. For perspective, it took Facebook 10 months to achieve this milestone.
Unfortunately, even with all of those users it’s going to be difficult for OpenAI to disrupt Google.
It’s a matter of scale, and it stems from an unlikely source.
Most investors remember Google Plus as an abysmal failure. The social media platform was launched in in 2011 as a competitor to Facebook. Back then, executives at tech companies arrogantly assumed they could disrupt competitor platforms with brute force.
Google Plus failed, however executives made one brilliant choice: They did away with the spider’s web of separate accounts for YouTube, Maps, Search, Gmail, and Photos, the firm’s most popular software platforms. All of those accounts, even today, are merged into a single Gmail login. This decision was genius. It means that every Google service has immediate access to the Google Assistant, the firm’s personal digital valet. No joke; I have used it for around five years and it is the best, far surpassing Siri and Alexa in its ability to swiftly provide clear answers to complex questions.
The ubiquity of Google’s platforms —, they all have at least 1 billion unique users — means cross-population on iPhones, Windows computers, game consoles, TVs, and even cars.
This single Gmail account is a Trojan Horse for Google Assistant, easily the most powerful and accomplished digital assistant. It’s a killer app that Google could switch on to find two billion users overnight.
Bill Gates is keenly aware. Speaking in May at a Goldman Sachs technology conference Gates made a strong argument that voice is the logical replacement for keyboards and computer screens. It makes perfect sense. If given the choice, most of us would rather speak to a computer, then type messages, à la ChatGTP.
This would certainly disrupt Google’s current business model based on display advertising. However, the best companies disrupt their own business before others get there. Also, a working, secure digital assistant might lead to a new subscription model worth tens of billions of dollars.
An assistant uniquely powered by Google would know everything from your contacts and calendar, to the places you have been and where you want to go. It would know your interests, and desires. Google has been collecting this data, through Contacts, Calendar, Search, Maps etc. since the day you signed up for your Gmail account.
Advances in artificial intelligence, and better cloud infrastructure mean all of this wisdom could be easily delivered on demand to your smart device. The rub is that networks need to be upgraded to get to that stage.
Arista Networks makes the critical hardware and software infrastructure. The Santa Clara, Calif-based company has become a leader in next generation scalable switches, routers and other network equipment for data center, hybrid cloud, on premise, and edge computing customers. And they are now scrambling to upgrade their networks ahead of a barrage of data-thirsty new AI applications.
The company introduced in December 2022 a series of 800G ethernet switches for data centers for these larger loads. The current standard is 400G.
Arista reported in April that first quarter sales reached $1.35 billion, up 54% year over year. Gross margins rose to 63%, with operating margins of 41%. Executives also raised full year guidance to $5.5 billion, up 22% versus a year ago.
At a price of $174.41, shares trade at 25.4x forward earnings and 9.9x sales. Both of these metrics are within the historical range for financial ratios. Investors are underestimating the growth ahead as networks are upgraded for AI projects.
Consider buying Arista shares on any pullback into the $160 level.
Unlock your full investment potential with our Strategic Advantage newsletter. Join us for a $1 trial and start achieving your financial goals today!
Read the full article here
