Google needs 'A.I. killer app' to take on competitors: Analyst

Alphabet (GOOGL) reported first quarter earnings on Tuesday. The company beat the street’s estimates on revenue and profit for the quarter. Alphabet reported ex-TAC revenue of $58.07 billion compared to an estimate of $56.98 billion and EPS of $1.17 compared with an estimate of $1.09. Alphabet also announced a $70 billion buyback. Shares moved higher in after-hours trading on the news.

Rohit Kulkarni, Roth MKM Managing Director, joined Yahoo Finance’s Seana Smith and Diane King Hall to discuss highlights from the earnings report. Kulkarni stressed the importance of A.I. to the company saying, “Google has always done the cutting-edge research and brought on new products on A.I., but we aren't seeing any real direct-to-consumer A.I. killer app from Google yet...that's what we need to focus on, what is that A.I. killer app…”

Kulkarni also pushed for more information from Alphabet in regards to cost-cutting measures, “…there needs to be a little bit of extra discipline from a cost standpoint and with the revenue upset that we are seeing that would just simply, put rocketship boosters to the stock.”

You can watch the full interview here.

Key video moments

00:00:20 On Google's position in A.I. race

00:00:40 On Silicon Valley's view on Google in A.I. race

00:00:55 On focus to find 'killer' app

00:01:30 On soft revenue growth era

00:02:00 On need to reduce headcount

00:02:15 On need for discipline for cost-cutting

Video transcript

SEANA SMITH: Rohit, what would you like Google to focus on in regards to their longer-term investments, what we were just talking about? Because, of course, the common, I guess, you could say, maybe, thought on the street right now is that Google is in a vulnerable position given Microsoft's investment in OpenAI and the potential there for AI.

ROHIT KULKARNI: Yeah, absolutely, [INAUDIBLE]. It is in a vulnerable position. They are losing the PR war, if you will. They are not yet losing any fundamental kind of profits so far. So "so far" being the key word there.

So I think from prioritizing long-term investments-- Silicon Valley has always believed that Google is the leader in AI. Google has always done the cutting-edge research and brought around new products on AI, but we are not seeing any real direct-to-consumer AI killer app from Google yet. So I think that's what we need to focus on, what is that AI killer app that Google can introduce in the next 3, 6, 12 months and how can they [? maybe ?] turn the PR table into a more of a fundamental battle as such.

DIANE KING HALL: Rohit, you mentioned wanting to see more cost-cutting measures from Alphabet, and, I mean, they announced some earlier this year with making dramatic job cuts, which you hadn't seen, really, in the company's history. So what is it that you want to see from them next with regard to cost-cutting measures?

ROHIT KULKARNI: Again, I think we need to acknowledge that we are still in a soft revenue growth zone for our entire industry. Google is showing search revenues growing 1% to 2%. So that's not heroic by any measures. So as we are in this soft revenue growth era, we think costs also need to grow in line, and I think hiring needs to slow down.

So if-- they had laid off so many people, yet the headcount increased sequentially, quarter over quarter. So I think we need a little bit of softer headcount growth, or, in fact, we would like to see headcount to be, actually, declining, quarter over quarter, just so that the base of operating expense that Google carries forward while the revenue growth is softer, I think that goes in line.

So I feel that there needs to be a little bit of extra discipline from a cost standpoint, and with the revenue upside that we are seeing, that would just simply put rocket ship boosters to the stock.