Unlocking the Power of Artificial Intelligence: A Hidden Gem in the Tech World
The buzz around artificial intelligence (AI) has reached unprecedented heights, with stocks like Nvidia and Palantir experiencing astronomical growth. However, savvy investors are aware that chasing these fast-rising stars can be a risky game. Instead, they’re turning to a more reliable player: Alphabet, the parent company of Google and YouTube.
A Pioneer in AI Innovation
Alphabet’s involvement in AI dates back to 2017, when it invented the transformer model, a type of neural network that can learn from data. Today, the company has applied this technology to numerous products, including circle-to-search, AI photo editing, and Google Search AI summaries. With its existing user base, Alphabet can seamlessly upgrade its customers to these new AI innovations, enhancing its value proposition and solidifying its position in the tech industry.
A Leader in Scale and Reach
Alphabet’s massive scale is impressive, with seven products boasting over 2 billion active users each. The company’s Gemini AI models are now embedded in these products, bringing cutting-edge AI tools to billions of people worldwide. From Google Docs to Gmail to Google Search itself, Alphabet is revolutionizing the way people interact with technology.
Monetizing AI: A Triple Threat
While AI can present a double-edged sword due to high computing costs, Alphabet has found ways to generate revenue from its AI tools. Firstly, it’s applying generative AI techniques to its advertising tool, Performance Max. Secondly, it’s monetizing new AI responses directly on Google Search. Finally, it’s outsourcing these AI tools through its Google Cloud division, one of the leading cloud computing companies globally. This triple threat has led to rapid revenue growth, with Google Cloud revenue increasing 35% year over year to $11.4 billion.
A Reasonable Valuation
Despite its impressive performance, Alphabet’s stock has only risen 23% this year, compared to other AI-themed stocks like Nvidia and Palantir, which have surged 100%. With a price-to-earnings ratio (P/E) of 23, well below the S&P 500 index average of 30, Alphabet’s stock appears reasonably cheap. Add to that its heavy share repurchase program, which boosts earnings per share (EPS) every year, and investors may be underrating Alphabet stock at the moment.
A Long-Term Bet on AI Leadership
If you believe Alphabet can maintain its lead in AI over the next decade, now might be an opportune time to buy and hold for the long term. With its proven track record of double-digit revenue and earnings growth, Alphabet is poised to continue delivering strong returns to investors.
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