Alphabet Inc. (GOOGL), the parent company of Google, has firmly established itself as a leading player in the ever-expanding field of artificial intelligence (AI). With its recent advancements and strategic initiatives in AI technology, GOOGL is well-positioned to harness the potential of this transformative wave.
Moreover, as the company is trading above its 50-day and 200-day moving averages of $109.41 and $100.82, indicating an uptrend, I think the stock could be an ideal buy this week.
As the realm of artificial intelligence (AI) continues to unfold, its vast array of applications across diverse sectors has captivated the attention of organizations worldwide. With the potential to revolutionize business operations and bestow a competitive edge, the adoption and investment in AI are experiencing an exponential surge.
According to a report by Fortune Business Insights, the global AI market is expected to reach $2.03 trillion by 2030, growing at a CAGR of 21.6%.
As a tech giant renowned for its relentless pursuit of innovation, GOOGL has emerged as a front-runner in the AI space, leveraging its vast resources and cutting-edge research to push the boundaries of what is possible.
Over the past three years, GOOGL’s revenue has grown at a 19.5% CAGR. During the same period, the company’s EBIT and EBITDA have soared at CAGRs of 25.9% and 21.9%, respectively.
Shares of GOOGL have gained 41.2% year-to-date and 20.2% over the past month to close the last trading session at $123.67.
Let’s take a closer look at the factors that could influence its near-term performance.
Positive Recent Developments
On May 25, 2023, GOOGL introduced Search Labs, a program that allows users to access early experiments such as SGE, Code Tips, and Add to Sheets in the United States.
The new generative AI-powered Search experience aims to make searching easier and faster. It helps users understand topics quickly, discover different perspectives and insights, and simplify the process of getting things done.
Moreover, on May 23, GOOGL’s Waymo and Uber Technologies, Inc. (UBER) announced a new strategic partnership to make Waymo’s autonomous driving technology available to more people through the Uber platform.
This integration will begin in Phoenix, where Waymo vehicles will be available for ride-hailing trips and local deliveries on both the Uber and Uber Eats apps. The partnership aims to offer a safe, enjoyable, and fully autonomous experience to users, combining Waymo’s technology with Uber’s global marketplace.
Also, on May 18, GOOGL unveiled the private preview of Duet AI for Google Cloud, an always-on AI collaborator powered by generative AI. It offers real-time code suggestions, chat assistance, and customizable features designed for enterprise requirements.
Solid Financials
During the first quarter that ended March 31, 2023, GOOGL’s revenues increased 2.6% year-over-year to $69.79 billion. Its Google services revenue rose marginally year-over-year to $61.47 billion, while Google cloud revenue grew 28.1% from the prior-year quarter to $7.45 billion.
Moreover, GOOGL’s cash and cash equivalents at the end of period amounted to $25.92 billion compared to $20.89 billion in the year-ago quarter.
Optimistic Analyst Estimates
Analysts expect GOOGL’s revenue and EPS for the fiscal second quarter ending June 2023 to increase 4.2% and 9.6% year-over-year to $72.59 billion and $1.33, respectively.
The consensus revenue estimate of $299.49 billion for the current fiscal year ending December 2023 reflects a 5.8% year-over-year rise. The consensus EPS estimate of $5.33 for the current year indicates a 16.9% rise year-over-year.
High Profitability
GOOGL’s trailing-12-month net income margin of 20.58% is 632.3% higher than the 2.81% industry average. Its 19.63% trailing-12-month levered FCF margin is 166.5% higher than the industry average of 7.36%.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.76%, 15.74%, and 15.86% are higher than the industry averages of 3.24%, 3.83%, and 1.42%.
Discounted Valuation
In terms of forward non-GAAP P/E, GOOGL is currently trading at 23.37x, which is 10.9% lower than its 26.22x five-year average. Its 12.91 forward EV/EBITDA multiple is 5.8% lower than its 13.71 five-year average.
The stock’s forward P/S multiple of 5.28 is 6.5% lower than its five-year average of 5.65.
POWR Ratings Reflect Robustness
GOOGL has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GOOGL has an A grade for Sentiment, consistent with optimistic analyst estimates. Moreover, its higher-than-industry profit margins justifies its B grade in Quality.
GOOGL ranks #13 in the 58-stock Internet industry.
In addition to the POWR Ratings I’ve highlighted, one can access GOOGL’s ratings for Growth, Value, Stability, and Momentum here.
Bottom Line
GOOGL has made several announcements regarding its advancements in AI technology, which signify its commitment to improving user experiences, enabling businesses to thrive, and providing valuable solutions for developers and enterprise customers.
With a diverse portfolio of AI-driven products and services, GOOGL strategically positions itself at the forefront of this transformative technology, empowering businesses and individuals alike to unlock new realms of productivity, efficiency, and insight.
In addition, the company’s profitability metrics surpass industry averages by a wide margin. Moreover, the stock currently trades at a discounted valuation compared to its historical averages.
Considering its recent upward price trajectory, GOOGL could be a solid buy this week
How Does Alphabet Inc. (GOOGL) Stack Up Against Its Peers?
While GOOGL has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its industry peers with A (Strong Buy) and B (Buy) ratings: trivago N.V. (TRVG), Travelzoo (TZOO), Opera Limited (PRA), and Yelp Inc. (YELP).
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GOOGL shares fell $123.67 (-100.00%) in premarket trading Wednesday. Year-to-date, GOOGL has gained 39.45%, versus a 9.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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