Shares in Google owner Alphabet (GOOG:NASDAQ) have been under quite a bit of pressure in recent months. One reason for this is that many investors are concerned that artificial intelligence (AI) is a major threat to the company’s business model. But Alphabet could be one of the best AI stocks to buy right now. Here are 3 reasons why.
1. Popular New AI Features
There is no doubt that generative AI is disrupting Alphabet’s business model. In the past, if you wanted an answer to a question, the chances are you’d go to Google. Ultimately, Google pretty much had a monopoly on search and it was able to generate a lot of revenue by showing search engine users digital ads.
The landscape has changed dramatically in the last few years, however. Today, people can get answers to questions through generative AI apps such as ChatGPT. So, Google is not as important as it once was and there is now some uncertainty about whether the company can continue to grow like it has in the past.
The thing is, Alphabet hasn’t sat around doing nothing while other tech companies have been launching generative AI apps. Not only has it launched its own generative AI chatbot, Gemini, but it has also introduced a feature called “AI Overviews” to its search platform. These tend to appear at the top of search results. And it’s having success with AI Overviews – these now have around 1.5 billion monthly users.
The fact that AI Overviews are being rapidly adopted by users is a good sign. Thanks to this feature, the company should be able to stay relevant in the age of AI. By showing digital ads to AI Overviews users, Alphabet should be able to continue growing.
2. AI Solutions across Cloud Computing
Alphabet is also a major player in the cloud computing space. And it’s embedding AI across its cloud platform in an effort to provide enhanced services to customers.
At business level, AI can be used across the Google Cloud to automate repetitive tasks, develop new products and services, gain deeper insights from data, and enhance security. Leveraging this technology, businesses can streamline their operations and create more value for their customers.
Meanwhile, at individual user level, users can now use Gemini in Docs and Gmail for writing assistance and in Sheets for data analysis, formula generation, and insights. Using the technology, one can potentially be far more productive.
Looking ahead, Alphabet is likely to continue to roll out innovative AI features that add value for customers across its cloud platform. This should attract new customers and increase stickiness with existing customers.
3. A Very Low Valuation Today
Finally, Alphabet would have to be one of the cheapest AI stocks in the market at the moment. At present, analysts expect the company to generate earnings per share of $9.60 for 2025. That puts the stock on a price-to-earnings (P/E) ratio of just 16. That’s far lower than the multiples on other AI stocks such as Microsoft (33), Meta Platforms (24), Amazon (31), and Snowflake (150).
Of course, Alphabet stock is not without its risks. In the short term, a downturn in the economy and a drop in advertising spending is a risk. This scenario could slow growth. Another risk is a poor financial return on the huge level of AI spending the company is currently making. This year, it plans to spend about $75 billion on AI.
All things considered, however, the stock looks attractive as an AI play. At its current low valuation, there’s potential for strong returns in the years ahead.
Edward Sheldon owns shares in Alphabet, Microsoft, Amazon, and Snowflake.
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
You can contact Ed at edward@goodmoneyguide.com
