Artificial Intelligence and Google's P/E Ratio

Google has a Price / Earnings ratio of 45, meaning that investors expect Google to do much better in the future than it is doing today. (By comparison Microsoft and Intel have Price / Earnings ratios of about 23 while Wal-Mart has one of only 16. The higher the Price / Earnings ratio the greater the increase in profits investors expect from the company.)

I have trouble understanding why investors have so much confidence in the future performance of Google because it's core business, Internet search, seems so vulnerable to competition. Yes, I expect Google to make large profits in the future. But its current profits are already huge.

Perhaps, however, Google's work on developing Artificial Intelligence justifies its high price / earnings ratio. Google's Co-founder Larry Page recently said: (HT to Futurismic ) "We have some people at Google (who) are really trying to build artificial intelligence and to do it on a large scale...."It's not as far off as people think."

One reason that Page is optimistic about developing artificial intelligence is that he estimates that computer operating systems are already more complicated than the code that "runs" individual humans. Thus, if Google gathers enough data about intelligence and throws enough computing power at the problem, the company might be able to develop large scale artificial intelligence.

Google has a huge database of how humans make decisions in search results. Any program that could do a really good job of predicting what kind of search decisions people make would be intelligent. Perhaps Google could create "life-like" artificial intelligence buy building a neural network that successfully predicts search decisions. Such artificial intelligence could easily generate a trillion dollars in profit and so the small possibility that Google will do it first might be pushing up the firm's Price / Earnings ratio.