Amid the emergence of generative artificial intelligence, Google parent Alphabet (GOOGL) stands out as a tech industry leader and a “Magnificent Seven” stock. Generative AI presents new opportunities as well as risk for GOOGL stock.
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Despite mounting competition in AI and internet search, GOOGL stock has advanced 49% this year. That’s better than the 37% jump in the Nasdaq composite. And, Google stock has forged a new cup with handle base.
Potential catalysts for GOOGL stock include the expected early 2024 release of “Gemini,” a large language model for creating AI apps. Training models are key to the rise of generative AI technology, which has boosted AI stocks.
“Launch of Gemini LLM could be a branding event for Google,” said Bank of America analyst Justin Post in a report.
Google stock fell on third quarter results as its cloud computing unit missed on revenue growth and apparently lost market share to Microsoft‘s (MSFT) Azure business.
The Justice Department’s nonjury antitrust trial vs. Google started Sept. 12. The government alleges Google maintains an internet search monopoly “through exclusionary distribution agreements that steer billions of search queries to Google each day.”
Google’s payments to Apple (AAPL) are under scrutiny in the anti-trust lawsuit.
If Google loses, U.S. District Judge Amit Mehta could order a Google breakup or changes to the way Google promotes its search engine. A ruling may not come until early 2024.
One concern for GOOGL stock is new competition in internet search.
GOOGL Stock: AI Battle Rages
Google aims to counter Microsoft’s investment in artificial-intelligence startup OpenAI by making its own generative AI tools available to software developers. One big question is how integrating chatbot AI technology into search queries will impact advertising revenue.
Google’s cloud-computing unit claims to be working with 70% of generative AI startups. Also, Google’s cloud unit is developing close ties with Salesforce (CRM), one of the biggest enterprise software makers.
At the Google I/O 2023 developers event on May 10, Alphabet showcased how generative AI will be integrated into search, maps, Workspace, photos, cloud computing and Android devices. Google discussed how advertising will evolve as generative AI is added to search.
Google’s board of directors has authorized an additional $70 billion in stock repurchases. In the first quarter, the company repurchased $14.6 billion of its own stock.
Amid pressure to cut expenses, Alphabet disclosed that Chief Executive Sundar Pichai’s pay jumped to $226 million in 2022, due to a big stock award.
Meanwhile, Alphabet has stepped up cost cutting.
Google stock on Jan. 20 said it will cut 12,000 jobs, or roughly 6% of its global workforce, adding to a growing wave of layoffs among U.S. technology companies. The layoffs follow a hiring spree at the company.
Google Stock: TikTok Pressures YouTube
YouTube Chief Executive Susan Wojcicki in February announced her departure. She was replaced by longtime YouTube executive Neal Mohan.
Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2023, analysts say.
Due to its huge cash holdings, Google stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.
The internet giant completed a 20-for-1 split for shares of Google-parent Alphabet after the market close on July 15, 2022.
Boosting Ad Business Through E-Commerce
Alphabet aims to boost its advertising business through e-commerce-related internet search. At the same time, it hopes to chip away at Amazon.com‘s (AMZN) dominance in product search.
Google’s internet search business will hold up better than other advertising formats, such as social media, analysts say.
Google has rolled out the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Gmail, maps and other applications. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.
In a near-term boost for its advertising business, Google has delayed phasing out internet cookies to 2024.
Google Stock: Artificial-Intelligence Prowess
Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015. The restructuring move separated Google’s core internet advertising business from so-called moonshots, such as autonomous vehicles and the Verily Life Sciences unit.
In March 2022, Google spun off its quantum-computing technology group as a separate company.
Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products. GOOGL stock is just one artificial-intelligence stock to watch.
At a Google developers conference in mid-May, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.
After a long run, GOOGL stock has dropped out of the IBD Leaderboard. The Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Big Tech Stocks Face Regulatory Headwinds
With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver.
A federal judge ruled in September 2021 that Apple must allow mobile app developers to steer consumers to outside payment methods. Google’s policies also are under scrutiny.
Google in 2021 said service fees at its Play Store would drop to 15% from 30%. The move reduced revenue.
Under Pichai, Google has improved transparency. Google began disclosing cloud-computing financial metrics with its fourth-quarter report in fiscal 2020. But the cloud business has yet to turn a profit. And YouTube’s profitability still remains a mystery.
Google Stock Fundamentals
Google earnings for the third quarter ending Sept. 30 jumped 46% to $1.55 a share. In Q3, Google’s gross revenue rose 11% to $76.69 billion.
The tech giant reports Google earnings under generally accepted accounting principles, also known as GAAP. Analysts had projected EPS of $1.46 on revenue of $76 billion.
Google said cloud-computing revenue rose 22% to $8.41 billion, missing estimates of $8.64 billion. Google’s cloud-computing business posted 28% growth in the June quarter.
Also, Google’s Q3 advertising revenue rose 9% to $59.6 billion vs. estimates of $59.1 billion.
Meanwhile, YouTube ad revenue rose 12% to $7.95 billion. Analysts had estimated YouTube ad revenue of $7.82 billion.
In Q3, capital spending came in at $8.1 billion, below consensus estimates of $9.1 billion. Also, Google repurchased $15.78 billion of its own stock, about the same as in the June quarter.
Google’s Q3 traffic acquisition costs rose 7% to $12.64 billion.
Waymo Autonomous-Vehicle Business
A key question for investors is how much should Google’s self-driving-car project Waymo and “Other Bets” such as the Verily Life Sciences unit figure into valuation.
In early 2018, some Google stock analysts projected Waymo’s long-term valuation in a wide range of $75 billion to $125 billion. Expectations for autonomous vehicles, though, have been sharply lowered.
Waymo in 2021 raised $2.25 billion in funding from outside investors. including private equity firm Silver Lake, the Canada Pension Plan Investment Board and Abu Dhabi’s Mubadala investment arm.
While Google did not disclose Waymo’s valuation in the funding round, reports said it was only $30 billion. It could be lower now.
Google Stock: Cloud, Hardware, Security Acquisitions
Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.
Also, Google’s acquisition of smartwatch maker Fitbit closed in January 2022. The $2.1 billion purchase should help Google make a push into the health and fitness market, analysts say.
Google’s cloud-computing business, meanwhile, faces tough rivals in Amazon and Microsoft.
Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.
In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.
More acquisitions to boost Google’s cloud business could be coming, analysts say. Google acquired cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.
Google Stock: Is It A Buy Now?
GOOGL stock jumped 65% in 2021. But in 2022, Google shares dropped 39%.
Google’s Relative Strength Rating stands at 87 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Google stock holds an Accumulation/Distribution Rating of D-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Further, shares hold an IBD Composite Rating of 93 out of 99. The best growth stocks have a Composite Rating of 90 or better.
From a cup-with-handle base, Google stock owns a 139.42 buy point. Still, GOOGL stock traded below the entry point as of Dec. 4.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
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