Published - June 12th, 2023 @10:50 AM (CET)
Artificial Intelligence (AI) Stirring Interest in Wall Street
Wall Street's focus has recently shifted primarily towards the artificial intelligence (AI) sector, sparking keen interest among investors. NVIDIA (NASDAQ:NVDA) , a key player in this realm due to their cutting-edge semiconductor chips and processors, has enjoyed a substantial boost, with their stock surging approximately 165% this year, briefly granting them a $1 trillion market cap.
Alphabet's Remarkable Performance in the AI Field
A major contender in the AI landscape, Alphabet (GOOG 0.16%) (GOOGL 0.07%), has further stoked this enthusiasm by launching several AI-empowered tools across Google Search, cloud, and workplace software services. This innovative approach has resulted in Alphabet's share prices soaring nearly 40% this year, surpassing numerous market indexes in 2023.
Investment Decisions for Alphabet Shareholders
Given this prosperous trend, Alphabet (NASDAQ:GOOGL) investors face the critical decision of whether to cash in on their shares or retain them, hoping for further growth. For potential buyers, it's the right time to scrutinise Alphabet's long-term potential.
Google Search Advertising: The Main Profit Generator for Alphabet
Despite Alphabet's foray into AI, the lion's share of its profits (58%) continues to emanate from its original platform: Google Search advertising. This sector also claims a larger share of Alphabet's net earnings. For the foreseeable future, Alphabet's earnings will be bolstered by this division's continuous growth, indicating that a significant surge in users of Google Bard or other chatbot AI tools would not dramatically affect the company's profits.
AI Investment in Google Search Boosts User Experience
Alphabet's persistent AI investment in Google Search enhances the platform's user experience, introducing AI-generated snippets from articles, pinpoint YouTube video links responding to user queries, and specific locations on Google Maps. These features bolster Google's customer value proposition and create significant barriers for potential competitors.
Waymo: Alphabet's Promising Growth Driver
Alphabet's Waymo subsidiary, the leading name in autonomous driving, is aiming to increase its daily rides tenfold by next summer in its three pilot cities: San Francisco, Los Angeles, and Phoenix. Despite its negligible impact on Alphabet's financials, Waymo's robust growth trajectory suggests it could become a substantial revenue driver in the long run.
Alphabet's Potential for Long-term Market Outperformance
As of today, Alphabet shares boast a forward price-to-earnings ratio (P/E) of around 23, considerably higher than its earlier P/E of 16, yet still trailing the S&P 500's average of approximately 25. Given its dominant position in Google Search and its potential growth paths, Alphabet is set to outperform the market average, making it a strong contender for long-term investment.
Alphabet's Remarkable Growth Amid AI Competition
Alphabet (GOOG 0.16%) (GOOGL 0.07%) has seen its shares surge nearly 40% this year, causing waves of excitement among its shareholders. This spike has been fuelled by the company's response to OpenAI's ChatGPT, with Alphabet’s own chatbot, Bard AI, gaining momentum after its introduction at the I/O Conference in May.
Projected Growth for Alphabet Amidst Industry Challenges
While Wall Street predicts moderate growth, with an average price target of $130.77 (indicating a 7% rise), Barclays' Ross Sandler optimistically forecasts a 31% increase, with a $160 price target for the upcoming year. This projection hinges on Alphabet's ability to accelerate its revenue growth, defend its market share in search, and return to profit growth.
Achieving All-Time Highs: Alphabet's Ambitious Targets
Challenged by Microsoft and OpenAI in the burgeoning AI industry, Alphabet's revenue growth has stalled. However, the easing tech recession points towards recovery. Alphabet's potential to revamp its revenue growth lies in its ability to outmaneuver Bing and ChatGPT, the latest contenders in the search domain while continuing to secure profits from its predominant search-based advertising model. Achieving a share price of $160 would mark a historical peak for Alphabet, a feat achievable by meeting the objectives mentioned above and outperforming expectations.
Facing fierce competition from Microsoft and OpenAI in the nascent AI industry, Alphabet has considerable growth opportunities, despite an inherent risk of volatility.
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