What You Need to Know
- The fusion of AI with Google Search is starting to yield strong results.
- Google Cloud remains a key player in the company’s success.
- Despite its positive growth, Alphabet’s stock is still less expensive than many other tech giants.
Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) is no longer lagging in the AI arena. The company’s Gemini generative AI model is now being hailed as one of the best performers in the field, and it’s no surprise given how smoothly it’s integrated into Google Search.
While Alphabet continues to explore new aspects of AI, its existing ventures are showing impressive figures, proving the company is positioned to thrive in the ongoing AI race.
After some solid results in the third quarter, I believe now is the time to consider investing, as Alphabet is bound to be an AI industry leader for the foreseeable future.
Revenue Surpasses $100 Billion in Q3
Although many companies have hit the $100 billion mark in quarterly revenue before, what sets Alphabet apart is the substantial profit generated. In Q3, their revenue rose by 16% year-on-year, reaching a striking $102 billion, out of which a third converted to a net income of $35 billion, making Alphabet the most profitable company globally.
This sort of cash flow gives Alphabet a competitive edge in AI development, as they are invested in building AI platforms and enhancing their cloud computing capabilities to serve other businesses.
The cloud revenue skyrocketed by 34% year-on-year, totaling $15 billion, with operating margins kicking up from 17% to almost 24%. Clearly, Google Cloud is ramping up profitability, which could soon lead to enormous financial benefits for Alphabet once their AI capacity is fully operational.
Interestingly, the star of this quarter was Google Search, a division previously thought to be at risk due to AI advancements. However, in Q3, revenue from Search climbed by 15% annually.
This strong performance showcases Alphabet’s strategy of integrating traditional search with generative AI is s ding, countering earlier investor doubts about its viability. Short-term negatives have shifted, cementing Alphabet’s place as a powerhouse in the ongoing AI journey. So, should you invest now?
Alphabet Stocks Remain Affordable
Following the announcements, the stock enjoyed a nice spike, boosting overall valuation; yet, many Wall Street analysts aren’t too optimistic for the future. They forecast a modest 11% revenue growth for next year, despite positive momentum throughout the year. Additionally, they anticipate a reduction in earnings per share due to aggressive expansion plans.
Looking at Alphabet’s valuation, it presently trades at about 30 times earnings, which remains lower than most competitors in the tech sector.
While it may not seem cheap relative to the overall market, it’s still more affordable than peers like Amazon, especially considering Alphabet’s superior performance. This, in my opinion, makes it a compelling buy given the current tech landscape’s evolving dynamics.
I’m optimistic about Alphabet’s future in AI, predicting it will stay a top choice for investors through 2025 and beyond. Even with the rise in stock price, I’d say there’s an opportunity here since it’s trading at a nice discount compared to some of its counterparts.
Is Now a Good Time to Put $1,000 into Alphabet?
Before diving in, here’s something to consider:
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Keithen Drury has investments in Alphabet. The Motley Fool also shares positions in Alphabet and has a disclosure policy.
