Alphabet’s recent energy consumption study published on August 21 has cast doubt on the notion that rising AI costs will destroy margins. According to Google researchers, a median Gemini text prompt consumes only 0.24 watt-hours of energy, significantly lower than previous estimates.
This finding is significant for Alphabet as it reinforces its cost advantage in deploying artificial intelligence. The company’s vertically integrated tech stack and AI accelerators give it an edge over competitors. Additionally, the study suggests that Alphabet can deploy AI across its businesses, further solidifying its economic moat.
The median Gemini prompt’s energy consumption decreased 33 times over the last year, and Alphabet’s traditional search is estimated to consume slightly more energy (around 0.30 Wh). While complex prompts may require more energy, the study shows immense model efficiency gains, which contribute to margin resilience.
Despite shares rising over 40% from April lows, Morningstar maintains a fair value estimate of $237 for Alphabet, citing its wide economic moat and cost advantage. The company’s growth in monthly token usage is attributed to material gains in model efficiency, making it essential for maintaining a strong margin profile.
Source: https://www.morningstar.com/stocks/alphabet-technical-paper-energy-consumption-supports-our-cost-advantage-thesis