Alphabet Faces ‘Clear and Present Danger’ of Falling Short in AI

The only thing that matters to Alphabet Inc. investors is whether it can get artificial intelligence right.

That was the message delivered this week as the company’s shares tumbled following news that Google’s flagship AI product was misfiring. The selloff erased $80 billion in market value in a single day, underscoring the importance investors now place on all things AI.

For a firm with the world’s biggest digital advertising business — its operations generated more than $100 billion in cash last year, with a record chunk of that going back to shareholders — the threat is simple: some other ...