A Boost for AI: Alphabet Stock Sees a Lift
President Trump’s latest executive order has sent Alphabet’s stock soaring, with a 2% increase by 10:30 a.m. ET on Tuesday. This move comes as a direct response to the revocation of a previous order by President Biden, which aimed to establish safety standards for AI models and required developers to share safety test results with the government.
A Weight Lifted Off AI Companies
The Biden order likely imposed significant costs on AI companies like Alphabet’s Google, which utilizes its Gemini AI to provide quick answers to search queries. By repealing this order, Trump’s administration is likely to save these companies a substantial amount of money, leading to a boost in profits.
A Broader Impact on AI Adoption
This move may also signal a shift in the administration’s stance on AI adoption, potentially paving the way for increased industry use of AI technology. This could have far-reaching implications for Alphabet’s business, although the exact impact remains to be seen.
Is Alphabet Stock a Buy?
While the reduction in costs and potential expansion of opportunities may seem like a positive development, investors must consider whether this justifies the current stock price. With a P/E ratio of 25.5 and a projected long-term earnings growth rate of 17%, Alphabet stock appears reasonably priced. However, the company’s significant investment in AI research and development dramatically reduces its free cash flow, making it a pricey 43 times free cash flow.
A Value Investor’s Perspective
From a value investing standpoint, Alphabet stock seems overpriced, especially considering the 17% growth rate. While the company’s potential for future growth is undeniable, the current price may not be justified.
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