Google Stock: This “X Factor” Is Huge for Alphabet Inc

Google StockCould Google Stock Surge in 2016?

Investors tend to ignore the most compelling factor about Alphabet Inc (NASDAQ:GOOG). They’re bullish on Google stock because it’s generated a lot of value for shareholders, but they don’t appreciate how the company got there in the first place.

I’m not just talking about the search engine. Yes, Google’s original task was to index everything on the Internet and make it searchable, but that was only the beginning. Other companies tried to do the same thing. Remember

There were other search engines that tried to compete, but Google emerged the victor. If you want to understand why Google stock has performed so well over the last decade and why it could continue to surge, then you have to know why they won.

Google is part of a software arms race that has been bubbling under the surface for a long time—the race for artificial intelligence software. It’s not something that these huge companies like to broadcast, but we occasionally get a glimpse of their secretive work.

When I say “artificial intelligence,” I’m not talking about robots and science fiction. Companies like Google are working to create programs that can learn and think. The applications are almost limitless. AI software can match advertisers with the right audience, make self-driving cars a real possibility, and power the “Internet of Things.”

But Google isn’t the only one looking for this gold mine. Facebook Inc, Microsoft Corporation, and, Inc. are some of the other firms in this race. It’s going to come down to whoever has the best AI software, and Google just scored a big win in that category. (Source: “AlphaGo beats Lee Se-dol again to take Google DeepMind Challenge series,” The Verge, March 12, 2016.)

Their AI software just did what no other machine has ever been able to do: it beat the world champion of Go.

What is Go, you ask? It’s an ancient Chinese game of strategy that’s complicated enough to make chess look like checkers. The number of possible moves is nearly infinite, so it takes a bonafide genius to become world champion.

AI programmers have always tested their software against Go players. A victory would mean that their software is capable of some genuinely creative thought. So it’s remarkable that Google beat the greatest Go player on Earth—three times in a row.

If you think there’s no way that AI could affect the price of Google stock, then think again, my friend. Alphabet’s share price was up 5.6% last week as the company’s software took down the world champion. It was a landmark moment.