New analysis indicates that Google's AI model Gemini may be causing a major disruption in investment perspectives on “AI stocks,” potentially marking a turning point in big tech investment strategies, hyperscaler providers, and the major investors funding the industry.
“Gemini has broken the notion that every dollar spent on AI is a good dollar.”Towards “lower development costs but greater success than anyone else.” Tom Essaye, founder and chairman of investment advisory firm Sevens Report, shared this view in a note to the company's clients.
Although Anthropic's Claude model has recently garnered wide attention for its potential impact on the software industry, the more formidable competitor to watch closely may be Google's Gemini, with Essaye outlining three key risks:
Essaye believes Gemini has the potential to rapidly seize market share from ChatGPT within the past year. This rapid growth could undermine OpenAI's ability to invest over $1 trillion in development, risking lost revenue momentum and growth, destabilizing the entire AI ecosystem's growth outlook.
Previously, the market viewed Google as “slow” in the generative AI race compared to OpenAI and Microsoft. But after upgrading Gemini, especially integrating it into core products like Search, Workspace, and Android, investors now see Google not just catching up but holding structural advantages.
Google’s billions-strong user base, control over platforms (Search, YouTube, Android), and its own cloud infrastructure position Gemini as practical within a vast ecosystem, leading the market to assess that Google can monetize AI faster than previously thought.
Another significant factor is Google's use of its self-developed TPU chips to build Gemini, potentially reducing dependence on external chip manufacturers. Until now, Nvidia, Broadcom, and TSMC shares surged due to massive chip demand for large language models (LLMs).
However, if a tech giant like Google can efficiently develop its own chips, external chip demand might be lower than expected, impacting profit growth and possibly pressuring semiconductor stocks’ price-to-earnings ratios going forward.
Furthermore, this suggests Google may control AI costs better than competitors long-term. If inference chip costs decline, operating margins could improve, generating more stable cash flows. Risks from soaring capital expenditures could be limited, prompting investors to revalue Alphabet as not just a “chip user” but an “owner of end-to-end AI infrastructure.”
Essaye points out that Gemini not only delivers high performance but also has lower development costs than some rivals, prompting investors to question other hyperscalers’ AI spending. If Google can build a model comparable to ChatGPT using its own structure, others likely can too.
Concerns arise that AI might increasingly become a “commodity,” making trillion-dollar AI infrastructure investments appear excessive.
In other words, the market is shifting from believing the biggest investor wins to rigorously evaluating investment efficiency, reflected in recent free cash flow pressures on large tech stocks.
While Essaye’s analysis emphasizes risks to the narrative around AI stock investments, Gemini’s success has clearly bolstered shares of Google (parent company Alphabet Inc.) recently.
Renewed confidence in Google’s AI strategy has driven investors to buy shares, projecting over 60% growth in 2025, the highest among tech growth stocks, making it one of Wall Street’s top performers and pushingmarket value above $4 trillion.This was reflected in January by revaluations and expectations for long-term growth.
Most recently, Google announced a record capital expenditure (Capex) forecast of $185 billion for 2026, setting a new investment benchmark above competitors and drawing increased investor scrutiny.
. Sundar Pichai, CEO of Google, is confident that Google's AI capabilities—user scale, infrastructure, and cost control—provide a long-term advantage. With Gemini, Google shows how massive spending to build advantages translates into real gains. Investors may begin rewarding companies that profitably manage AI, control costs, preserve cash flow, and demonstrate clear ROI, rather than those simply spending the most.
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Source information Business Insider
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