Russell Brandom, reporting for The Verge:
The version of Allo rolling out today will store all non-incognito messages by default — a clear change from Google’s earlier statements that the app would only store messages transiently and in non-identifiable form. The records will now persist until the user actively deletes them, giving Google default access to a full history of conversations in the app. Users can also avoid the logging by using Allo’s Incognito Mode, which is still fully end-to-end encrypted and unchanged from the initial announcement.
Like Hangouts and Gmail, Allo messages will still be encrypted between the device and Google servers, and stored on servers using encryption that leaves the messages accessible to Google’s algorithms.
According to Google, the change was made to improve the Allo assistant’s smart reply feature, which generates suggested responses to a given conversation. Like most machine learning systems, the smart replies work better with more data. As the Allo team tested those replies, they decided the performance boost from permanently stored messages was worth giving up privacy benefits of transient storage.
Not surprising, I'd actually be more surprised if Google was storing them regardless and just not telling people, so at least I have to give them points for outright admitting they store the messages in the first place.