Alphabet (GOOGL) To Open AI Research Lab, Expand In China

Alphabet Inc.’s (NASDAQ:GOOGL) Google has plans of opening a new research lab in China, dedicated solely to artificial intelligence (AI).

Although not much details have been disclosed, the company plans to hire local talent from the region for AI research in a number of areas.

Fei-Fei Li, the chief scientist at Google’s cloud unit, who will lead the Beijing research center, said, “It will be a small team focused on advancing basic AI research in publications, academic conferences and knowledge exchange."

Google already has similar facilities in New York, Toronto, London, and Zurich, but this will be the first such center in Asia.

The launch of the new research center highlights Google’s continued push into AI, giving the company an edge in one of technology’s most competitive fields.

Notably, Alphabet’s shares have returned 32.6% year to date, outperforming the industry’s gain of 24.3%.

Google’s China Footprint to get a Boost

Google has never had a great time in China. Since 2010, Google’s search engine has been banned in the Chinese market along with its app store, email and cloud storage services.

Despite the strict Chinese policy that imposes increasingly strict rules on foreign firms, including new censorship restrictions, the search giant has been trying to enter this market by focusing on AI.

In this regard, Google this year teamed up with the local authorities in China to hold a five-day festival in the country. The event focused on human-versus-computer showdown in the ancient game of Go.

The search giant has been making efforts to get developers in China trained and hooked on to its AI building blocks.

According to the National Development and Reform Commission statement (May 2016), China will increase investments on developing the AI sector and has plans of creating a market worth more than 100 billion yuan (US $15.26 billion) over the next three years. The program will involve key projects such as intelligent home appliances, smart automobiles, intelligent unmanned systems, intelligent wearable devices and robots.

Given the higher spending on AI in China, we believe that the opening of the AI research center and focus on AI products will aid Google in re-building its presence in China going forward.

Will Google Succeed in Re-Building its Presence in China?

It is too early to guarantee a profitable business for Google in China, firstly, because of the strict rules and laws in China that control the domestic internet and block some foreign websites. Therefore, developers in China cannot access Google’s AI tools and its cloud-computing business without overseas servers or technical tricks.

Secondly, Google will face stiff homegrown competition, primarily from Baidu Inc. (NASDAQ:BIDU) and Alibaba (NYSE:BABA) in the race to create the most popular foundational tools for inventions like voice-controlled speakers and self-driving cars.

Alphabet Inc. Price and Consensus

Alphabet Inc. Price and Consensus | Alphabet Inc. Quote

Our Take

Google is on track with its transition from “Mobile-first” to “AI-First”. Its continued AI-based efforts indicate that it is increasingly banking on AI and machine learning technologies for growth.

Google’s ability to innovate has translated into robust growth as it continues to adapt to changing market trends. Its innovations outside the core search business include healthcare, self-driving cars, cloud computing and drones, all being driven significantly by machine learning.

Other key players like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) are also ramping up their technologies to develop more solutions. However, each has a different approach toward the use of the technology.

Zacks Rank

Currently Alphabet has a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank stocks here.

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