Source: PaxForex Premium Analytics Portal, Fundamental Insight
The tech industry is currently experiencing a significant surge in artificial intelligence (AI) advancements. Companies across the board are leveraging new AI developments, with leading computer chip provider Nvidia seeing its market cap soar to $2.5 trillion. This growth reflects the increasing demand for computing power.
Alphabet, the parent company of Google and YouTube, is exceptionally well-positioned to capitalize on the AI boom. With access to vast amounts of data and billions of users, Alphabet stands out in the AI landscape. However, a year ago, there were concerns among investors that Microsoft and OpenAI were leading the way with innovative chatbot tools, putting Alphabet at a potential disadvantage in the AI race.
Currently, Alphabet appears to have made significant strides, as evidenced by the numerous product announcements at the recent Google I/O event. This progress raises the question: Is Alphabet now leading in the AI sector? The implications for Alphabet's stock could be substantial.
Google Search remains Alphabet's most significant product, holding a dominant 90% market share and used by billions worldwide. Google users will soon receive generative AI search results via the Gemini AI chatbot for specific queries. Although not available in all markets yet, this move aims to compete with emerging response query platforms like OpenAI and Perplexity, enhancing Google Search's value and preventing users from migrating to alternatives like Bing or OpenAI.
More crucially, Alphabet plans to integrate Gemini into other products, such as Google Maps, Google Photos, and its Pixel hardware devices. These advancements are designed to enhance the user experience across all Alphabet platforms, further distancing them from competitors. While the true value of these innovations remains to be seen, Alphabet is aggressively introducing numerous AI products to its customers.
The AI industry requires significant computing power, a fact highlighted by Nvidia's rise to become one of the world's largest companies. Alphabet, fortunately for its investors, has been investing in AI computing infrastructure for over a decade. It recently updated its Tensor chips, a competitor to Nvidia's, boasting a 4.7x improvement in performance. Google Cloud, powered by these chips, now generates tens of billions in revenue.
In 2024, Alphabet expects to spend $50 billion on capital expenditures, primarily for AI infrastructure. Few companies can match this level of investment, and Alphabet's long-term commitment allows it to deploy AI tools across its products for billions of users, whereas start-ups must raise substantial funds to support much smaller user bases.
Alphabet's management deserves commendation for their forward-thinking approach. The company possesses the best AI infrastructure globally and is dedicated to further improvements in the coming years.
Investors might be concerned that Alphabet's extensive AI product announcements lack a clear monetization strategy. While it's true that Alphabet isn't currently generating significant direct revenue from AI, the company is well-positioned to benefit from AI growth in the long term.
Google Cloud, for instance, can offer these AI tools to third parties, potentially generating tens of billions in revenue over the next few years. Additionally, incorporating advertisements into generative AI search results can further boost revenue from Google Search.
Concerns about Google Search being disrupted by OpenAI, which were significant a year ago, seem to be diminishing. With Alphabet's stock trading at a price-to-earnings ratio of 27, it is reasonably valued, especially if these AI tools drive sustained revenue growth. Investors can be reassured that Alphabet is now at the forefront of AI advancements.
As long as the price is above 165.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 173.08
- Take Profit 1: 180.00
- Take Profit 2: 185.00
Alternative scenario:
If the level of 165.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 165.00
- Take Profit 1: 160.00
- Take Profit 2: 155.00
