Alphabet’s Stock Performance and AI Strategy
Alphabet, trading under the ticker symbols GOOGL and GOOG, experienced a significant rise in its stock price, reaching an all-time high of $207.05 on February 4. This surge was driven by strong growth and earnings momentum in 2024. However, shareholders have faced challenges in recent months due to concerns about the global economy affecting the broader stock market. As of April 11, Alphabet’s shares have decreased by 24% from their record high.
Despite this volatility, the ongoing revolution in artificial intelligence (AI) remains a constant. Innovations in machine learning, automation, and generative AI are rapidly transforming the global economy, and Alphabet is positioned at the forefront to capitalize on substantial long-term growth opportunities.
Reasons to Consider Alphabet as a Leading AI Stock
- AI Leadership and Strategy
Alphabet’s AI strategy is notable, as it integrates machine learning, generative AI, and automation throughout its ecosystem. With platforms such as Google Search, YouTube, Android, and Chrome, the company has a diverse user base that enables the leverage of vast user data to support advanced AI models. Google Cloud, with its unique Tensor Processing Units (TPUs), contributes to Alphabet’s AI leadership and has been a significant growth driver. CEO Sundar Pichai has emphasized the company’s advantage in developing every component of its technology stack, leading to efficiencies in training, serving, and developer productivity.
Alphabet benefits from several growth factors supporting its AI dominance:
- Google Cloud and its AI solutions are well-positioned to capture market share from competitors like Amazon’s AWS and Microsoft’s Azure.
- Android’s global presence on 3 billion devices creates opportunities to monetize AI applications, such as the Gemini generative AI chatbot.
- YouTube’s growth as a social media platform drives revenue from subscription services, contributing to positive operating income.
- Waymo, Alphabet’s self-driving car unit, is conducting autonomous vehicle testing in over 10 cities and is an early leader in the sector.
- Resilience to Tariffs
Alphabet’s robust fundamentals, scale, and diversification are beneficial amidst uncertainties related to trade tariffs under the Trump administration. Unlike some tech peers, Alphabet’s core digital advertising business, which made up 78% of its revenue the previous year, remains largely unaffected by tariffs on imported goods. With more than half of its operations outside the U.S., Alphabet appears resilient, with business activities continuing into the second quarter.
- Continued Earnings Growth
Following a record-breaking 2024 with 14% revenue growth and earnings per share (EPS) of $8.04, Alphabet is projected to sustain strong earnings growth and free cash flow. Wall Street analysts anticipate further upside, including double-digit revenue growth in 2025 and an EPS estimate of $8.90, marking an 11% year-over-year increase. Recent cost-saving measures, such as workforce reductions, could bolster profitability and exceed earnings forecasts. With a solid balance sheet and $96 billion in cash, Alphabet is well-prepared to navigate various macroeconomic challenges.
- Attractive Valuation
Alphabet is considered a top AI investment due to its attractive valuation. With a forward price-to-earnings (P/E) ratio of 17, it trades at a discount compared to its peers, including AI leaders such as Apple, Amazon, Meta Platforms, Microsoft, and Nvidia, which average a P/E ratio of around 26. Given Alphabet’s significant earnings growth, shares may be undervalued.
Outlook
While risks such as regulatory scrutiny and a challenging macroeconomic environment persist, Alphabet’s AI leadership positions the company to strengthen its market position. Provided Alphabet continues to deliver profitable growth, there is potential for the stock to reach new all-time highs.
