Source: PaxForex Premium Analytics Portal, Fundamental Insight

Among the "Magnificent Seven" stocks, Alphabet is currently receiving the least recognition. Despite facing numerous challenges stemming from its generative artificial intelligence (AI) model, Alphabet's setbacks are unlikely to persist indefinitely.

So, what does the future hold for Alphabet five years from now?

Alphabet serves as the parent company to Google, Android, YouTube, and other entities. While these may appear to be diverse businesses, they all share a strong focus on advertising. With advertising contributing 76% of Alphabet's revenue, excelling in this domain is paramount. Therefore, ensuring the success of its AI model is crucial.

Alphabet utilizes AI in various ways, including making informed decisions about targeted advertisements. Weak performance in this aspect could lead advertisers to question the efficacy of investing in Alphabet's platforms, potentially diverting their ad spending elsewhere. However, Alphabet's ad revenue demonstrated resilience, rising by 11% year over year in Q4.

Moreover, Alphabet's generative AI product, Gemini, has encountered several public missteps since its launch. From issues with AI image generation to providing inaccurate responses to queries, its rollout has been less than smooth.

A pivotal aspect of any AI model is the quality and quantity of data it relies on. Alphabet stands to receive a significant boost in both aspects as Apple reportedly contemplates integrating Alphabet's Gemini model into its iPhones. This collaboration would grant Alphabet access to crucial user data, thereby enhancing the value of the ad space it offers.

Such developments could position Alphabet's AI model as a formidable player in the market five years from now. However, despite these potential advancements, the market sentiment toward Alphabet suggests skepticism about its future prospects.

In contrast to many of its prominent counterparts in the tech industry, Alphabet's stock is not trading at a premium valuation. Currently, it is valued at just under 22 times earnings, a figure considerably lower than that of its peers.

When compared to Microsoft and Apple, which are trading at 37 and 26 times earnings, respectively, Alphabet appears fairly priced in relation to its competitors.

This positioning bodes well for Alphabet's future performance, as its potential for growth is not fully reflected in its current stock price. With Wall Street analysts forecasting an 11% growth rate over the next two years, Alphabet's stock presents an opportunity for investors to achieve market-beating returns, exceeding 10% per year.

Moreover, Alphabet has capitalized on its modest valuation by executing significant share buybacks. In the fourth quarter alone, the company repurchased $16.2 billion in stock, effectively reducing its outstanding share count by over 3% and consequently bolstering its earnings per share.

Furthermore, Alphabet's operating margin has seen improvement, thanks to prudent spending practices.

Collectively, these factors position Alphabet as a company capable of elevating its earnings per share by a percentage in the mid-teens range, surpassing the pace of revenue growth. Such prospects set the stage for Alphabet's stock to potentially outperform the market over the next five years.

Given these favorable circumstances, I believe Alphabet represents an excellent investment opportunity at present, particularly considering its strong foundation for future success contingent upon the refinement of its AI models. With Alphabet's extensive engineering resources at its disposal, overcoming potential challenges in this regard should prove manageable.

As long as the price is above 145.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 151.74
• Take Profit 1: 155.00
• Take Profit 2: 160.00

Alternative scenario:

If the level of 145.00 is broken-down, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 145.00
• Take Profit 1: 140.00
• Take Profit 2: 135.00