Throughout this year, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has been trading at an increasingly attractive discount compared to its FAANG and “Magnificent Seven” counterparts, all while harboring one of the most formidable artificial intelligence (AI) businesses globally. As we delve deeper into the transformative long-term potential of generative AI, it becomes challenging to envision a scenario where Alphabet doesn’t emerge as one of the foremost beneficiaries.
Arguably, Alphabet stands out as the go-to stock for top-tier AI exposure, having dedicated considerable focus to AI for many years, long before ChatGPT made its debut nearly a year ago. While other tech giants are just starting to catch up, Alphabet has been playing the long game with AI.
However, the disparity in Alphabet’s share valuation compared to its peers is not without reason. Google presently reigns supreme in the realm of ad-based search, and AI looms as a disruptive force that could potentially disrupt this seemingly unassailable search business.
The pivotal question is whether Alphabet will fully harness the potential of AI to safeguard its territory or if another player, possibly a member of the Magnificent Seven, will utilize AI to seize a substantial portion of the market share as search and advertising transition into the AI era.
A Brighter Future for Google in the AI Era
I firmly believe that Google not only possesses the capability to defend its search dominance but also to elevate its search business to new heights by incorporating cutting-edge generative AI technology (imagine the potential with Bard AI). Furthermore, Google Cloud stands to experience significant growth re-acceleration, thanks in part to AI-driven innovations. Let’s not overlook Alphabet’s other ventures, particularly its autonomous driving division, Waymo, which could experience a meteoric rise through the application of AI.
All things considered, we may look back at Alphabet’s stock in a few years, wondering why its shares were undervalued relative to its peer group. At the time of writing, GOOGL shares trade at 29.26 times trailing price-to-earnings (P/E) or 24.33 times forward P/E. At these levels, Alphabet’s shares represent a remarkable opportunity, especially for those deterred by the loftier entry prices of other Magnificent Seven members.
Could it be that Alphabet’s stock is the most magnificent of them all? While there’s a genuine risk that Google’s search dominance could erode if it fails to remain competitive in the AI landscape, I firmly believe that the company not only has the capability to keep pace with peers like Microsoft (MSFT) in the AI era but also has the potential to dominate.
The Resurgence of Sergey Brin: A Key Catalyst
Sergey Brin, co-founder of Google, has returned from retirement and is actively involved in AI projects at Alphabet. Undoubtedly, Brin is the genius behind the ubiquitous search engine we all rely on today. While only time will reveal Brin’s impact in guiding the firm through the AI era, it would be unwise to bet against a visionary of his caliber being back at the forefront of technological innovation.
Brin may not fit the traditional CEO mold, especially compared to Alphabet’s current CEO, Sundar Pichai. Nevertheless, Brin’s heart is that of an engineer, and he displays a passion for being hands-on with emerging technologies that have the potential to reshape the world. His willingness to roll up his sleeves may contribute significantly to projects that propel the company to new heights.
For now, it remains uncertain what Brin’s return to Google will bring. However, I am highly optimistic about his comeback, especially as the market begins to favor Alphabet’s peers in the ongoing AI race.
Conclusion
Alphabet is unmistakably betting big on AI, and despite its stock’s notable rise of around 66% from last year’s lows, there appears to be substantial room for further growth as the generative AI race enters its second year.
Featured Image: Megapixl
Author Faith Yakubu