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Can AI, Ad & Waymo Strength Drive GOOGL Stock Beyond 16.5% YTD Gain?
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Alphabet (GOOGL - Free Report) has been making significant strides in artificial intelligence (AI), search engines and autonomous driving technology, which, in turn, is instilling investor optimism in its stock. With a 16.5% year-to-date (YTD) gain, Alphabet has outperformed the Zacks Internet-Services industry’s return of 14.3%.
However, the GOOGL stock has lagged behind the broader technology sector’s rally of 23.4% and the S&P 500 index’s gain of 20% in the same time frame.
Alphabet has been at the forefront of the AI revolution, making significant investments in generative AI (GenAI) technology. Its growing GenAI capabilities are driving its momentum in the booming cloud computing market and the search engine space by enhancing search results.
The company is also riding on its strength in YouTube and its dominant position in the search engine market, which are playing a vital role in shaping the growth trajectory of its advertisement business.
Alphabet’s expanding footprint in the self-driving vehicle space on the back of Waymo is another major positive.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
However, increasing investment expenses, litigation issues associated with data privacy and its AI technology, and market uncertainties are concerning for GOOGL.
Also, Alphabet faces significant competition in the booming GenAI market from the likes of Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) , which are leaving no stone unturned to boost their GenAI-powered offerings.
Although Alphabet enjoys a first-mover advantage in the autonomous driving space, it faces rising competition from the likes of Amazon, Baidu, General Motors and Tesla.
Stiff competition poses a risk to GOOGL’s market position.
Given the combination of both risks and rewards, investors should consider the fact that how these AI, search and autonomous driving initiatives poise Alphabet well for growth opportunities in the long run.
GOOGL Stock Overvalued
GOOGL stock is not so cheap, as the Value Style Score of C suggests a stretched valuation at this moment.
Alphabet is currently trading at a premium with a forward 12-month Price/Sales of 6.32X compared with the industry’s 5.34X, which suggests that investors should wait for a better entry point.
Image Source: Zacks Investment Research
Solid GenAI Momentum: A Key Catalyst for GOOGL
Alphabet’s division Google is cashing in on the increasing demand for Large Language Models (LLM) with its most powerful AI model called Gemini.
Gemini comes in four sizes, forming a versatile model family that runs efficiently on everything, from data centers to devices. Each model of this family is designed for various use cases. With Gemini, Google offers the longest context window of any large-scale foundation model to date.
The company offers an enterprise-focused AI code completion and assistance tool, Gemini Code Assist, which is driving its momentum among various enterprises.
Solid momentum in Google’s Vertex AI, which enables developers to train, tune, augment and deploy applications using generative AI models, is another positive. The launch of the latest image generation model, namely Imagen 3, in preview for Vertex AI customers with early access, is a plus.
Google’s introduction of various open-source tools to support generative AI projects and infrastructure is another positive.
Google offers Gemma 2, which belongs to its family of lightweight, state-of-the-art open models called Gemma, to researchers and developers across the globe. It is available in both 9 billion (9B) and 27 billion (27B) parameter sizes.
Its unveiling of LearnLM, a family of GenAI models designed for conversational tutoring on various subjects, is noteworthy.
Search, YouTube & Ad Strength Drives GOOGL’s Growth
Google’s continued efforts toward innovation in AI techniques for the advancement of its search segment, which accounts for a major portion of its total revenues, are driving traffic on its search platform.
The integration of GenAI technology into the search engine is benefiting Google Search. LLMs, coupled with multi-search and visual exploration features, are continuously improving the search results.
The introduction of Search Generative Experience (“SGE”), which leverages GenAI technology to make search results more natural and intuitive, is noteworthy.
The company’s strength in the mobile search category on the back of mobile-friendly algorithms, robust product listings and flight search capabilities is a plus.
Coming to the advertisement business, Alphabet’s growing efforts to deliver better performance and profitability to advertisers on the back of foundational research models and LLMs are major positives.
SGE is aiding the performance of GOOGL’s advertisement business by helping in the creation of relevant, customized and high-quality ads. The strength in the conversational experience of Google Ads and Performance Max is driving the company’s momentum among advertisers. The improving performance of YouTube ads is another positive.
This apart, the strengthening user momentum in YouTube Shorts is a tailwind. Google’s growing efforts to bolster relationships with content creators are positive.
Waymo Expansion Efforts Boost Prospects
Alphabet is well-poised to penetrate the booming autonomous driving space rapidly on the back of its strong efforts toward reaching out to more customers on the back of its robust driverless technology and expansion efforts.
Waymo’s strong operations in Phoenix, AZ, are a major positive.
The company’s multi-year partnership with Uber Technologies (UBER - Free Report) to offer an autonomous driving experience to the latter’s customers in Phoenix, AZ, is noteworthy. This deal is in sync with the company’s deepening focus in Phoenix.
The company also rolled out a rider-only service in downtown Phoenix.
Apart from Phoenix, Alphabet made Waymo One available to everyone in San Francisco. This move marks Waymo’s very first such expansion outside of Phoenix.
Waymo received regulatory approval to expand in Los Angeles. It is also testing its self-driving vehicles on the streets of Bellevue, WA.
Additionally, the company is testing self-driving vehicles on the streets of Austin, TX, which was declared the fourth city for Waymo One last year.
Waymo recently expanded its partnership with Uber to introduce the Waymo One experience in Austin and Atlanta via the Uber app. The service will begin in the early 2025.
Rising Estimates Reflect Upside Potential in GOOGL Stock
Alphabet’s long-term prospects are expected to benefit from its growing GenAI innovations and product integrations. The company’s strength in search and YouTube, which are driving its advertisement revenues, is a positive. Also, its growing momentum in Waymo is a plus. All these factors are expected to drive its top-line growth in the long run.
The Zacks Consensus Estimate for 2024 revenues is pegged at $292.3 billion, which indicates year-over-year growth of 14%.
The same for 2024 earnings stands at $7.63 per share, which implies year-over-year growth of 31.6%. The EPS estimate has moved north by a penny over the past 60 days.
Image Source: Zacks Investment Research
Conclusion
In this data-driven world, wherein AI has become mainstream for most businesses, Alphabet’s growing GenAI capabilities present a potential catalyst for future growth. Moreover, the company’s dominant position in the search engine market and first-mover advantage in the autonomous driving space are major positives.
However, growing litigation issues related to privacy concerns and AI technology, along with intensifying competition in both AI and autonomous driving fields, do not bode well for the stock.
Image: Bigstock
Can AI, Ad & Waymo Strength Drive GOOGL Stock Beyond 16.5% YTD Gain?
Alphabet (GOOGL - Free Report) has been making significant strides in artificial intelligence (AI), search engines and autonomous driving technology, which, in turn, is instilling investor optimism in its stock. With a 16.5% year-to-date (YTD) gain, Alphabet has outperformed the Zacks Internet-Services industry’s return of 14.3%.
However, the GOOGL stock has lagged behind the broader technology sector’s rally of 23.4% and the S&P 500 index’s gain of 20% in the same time frame.
Alphabet has been at the forefront of the AI revolution, making significant investments in generative AI (GenAI) technology. Its growing GenAI capabilities are driving its momentum in the booming cloud computing market and the search engine space by enhancing search results.
The company is also riding on its strength in YouTube and its dominant position in the search engine market, which are playing a vital role in shaping the growth trajectory of its advertisement business.
Alphabet’s expanding footprint in the self-driving vehicle space on the back of Waymo is another major positive.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
However, increasing investment expenses, litigation issues associated with data privacy and its AI technology, and market uncertainties are concerning for GOOGL.
Also, Alphabet faces significant competition in the booming GenAI market from the likes of Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) , which are leaving no stone unturned to boost their GenAI-powered offerings.
Although Alphabet enjoys a first-mover advantage in the autonomous driving space, it faces rising competition from the likes of Amazon, Baidu, General Motors and Tesla.
Stiff competition poses a risk to GOOGL’s market position.
Given the combination of both risks and rewards, investors should consider the fact that how these AI, search and autonomous driving initiatives poise Alphabet well for growth opportunities in the long run.
GOOGL Stock Overvalued
GOOGL stock is not so cheap, as the Value Style Score of C suggests a stretched valuation at this moment.
Alphabet is currently trading at a premium with a forward 12-month Price/Sales of 6.32X compared with the industry’s 5.34X, which suggests that investors should wait for a better entry point.
Image Source: Zacks Investment Research
Solid GenAI Momentum: A Key Catalyst for GOOGL
Alphabet’s division Google is cashing in on the increasing demand for Large Language Models (LLM) with its most powerful AI model called Gemini.
Gemini comes in four sizes, forming a versatile model family that runs efficiently on everything, from data centers to devices. Each model of this family is designed for various use cases. With Gemini, Google offers the longest context window of any large-scale foundation model to date.
The company offers an enterprise-focused AI code completion and assistance tool, Gemini Code Assist, which is driving its momentum among various enterprises.
Solid momentum in Google’s Vertex AI, which enables developers to train, tune, augment and deploy applications using generative AI models, is another positive. The launch of the latest image generation model, namely Imagen 3, in preview for Vertex AI customers with early access, is a plus.
Google’s introduction of various open-source tools to support generative AI projects and infrastructure is another positive.
Google offers Gemma 2, which belongs to its family of lightweight, state-of-the-art open models called Gemma, to researchers and developers across the globe. It is available in both 9 billion (9B) and 27 billion (27B) parameter sizes.
Its unveiling of LearnLM, a family of GenAI models designed for conversational tutoring on various subjects, is noteworthy.
Search, YouTube & Ad Strength Drives GOOGL’s Growth
Google’s continued efforts toward innovation in AI techniques for the advancement of its search segment, which accounts for a major portion of its total revenues, are driving traffic on its search platform.
The integration of GenAI technology into the search engine is benefiting Google Search. LLMs, coupled with multi-search and visual exploration features, are continuously improving the search results.
The introduction of Search Generative Experience (“SGE”), which leverages GenAI technology to make search results more natural and intuitive, is noteworthy.
The company’s strength in the mobile search category on the back of mobile-friendly algorithms, robust product listings and flight search capabilities is a plus.
Coming to the advertisement business, Alphabet’s growing efforts to deliver better performance and profitability to advertisers on the back of foundational research models and LLMs are major positives.
SGE is aiding the performance of GOOGL’s advertisement business by helping in the creation of relevant, customized and high-quality ads. The strength in the conversational experience of Google Ads and Performance Max is driving the company’s momentum among advertisers. The improving performance of YouTube ads is another positive.
This apart, the strengthening user momentum in YouTube Shorts is a tailwind. Google’s growing efforts to bolster relationships with content creators are positive.
Waymo Expansion Efforts Boost Prospects
Alphabet is well-poised to penetrate the booming autonomous driving space rapidly on the back of its strong efforts toward reaching out to more customers on the back of its robust driverless technology and expansion efforts.
Waymo’s strong operations in Phoenix, AZ, are a major positive.
The company’s multi-year partnership with Uber Technologies (UBER - Free Report) to offer an autonomous driving experience to the latter’s customers in Phoenix, AZ, is noteworthy. This deal is in sync with the company’s deepening focus in Phoenix.
The company also rolled out a rider-only service in downtown Phoenix.
Apart from Phoenix, Alphabet made Waymo One available to everyone in San Francisco. This move marks Waymo’s very first such expansion outside of Phoenix.
Waymo received regulatory approval to expand in Los Angeles. It is also testing its self-driving vehicles on the streets of Bellevue, WA.
Additionally, the company is testing self-driving vehicles on the streets of Austin, TX, which was declared the fourth city for Waymo One last year.
Waymo recently expanded its partnership with Uber to introduce the Waymo One experience in Austin and Atlanta via the Uber app. The service will begin in the early 2025.
Rising Estimates Reflect Upside Potential in GOOGL Stock
Alphabet’s long-term prospects are expected to benefit from its growing GenAI innovations and product integrations. The company’s strength in search and YouTube, which are driving its advertisement revenues, is a positive. Also, its growing momentum in Waymo is a plus. All these factors are expected to drive its top-line growth in the long run.
The Zacks Consensus Estimate for 2024 revenues is pegged at $292.3 billion, which indicates year-over-year growth of 14%.
The same for 2024 earnings stands at $7.63 per share, which implies year-over-year growth of 31.6%. The EPS estimate has moved north by a penny over the past 60 days.
Image Source: Zacks Investment Research
Conclusion
In this data-driven world, wherein AI has become mainstream for most businesses, Alphabet’s growing GenAI capabilities present a potential catalyst for future growth. Moreover, the company’s dominant position in the search engine market and first-mover advantage in the autonomous driving space are major positives.
However, growing litigation issues related to privacy concerns and AI technology, along with intensifying competition in both AI and autonomous driving fields, do not bode well for the stock.
Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.