Alphabet has benefited from a surge in its cloud computing business since the COVID-19 pandemic forced many to work from home. New AI products like Gemini will also boost growth in the long-run.
Below are 3 reasons why Alphabet stock needs to be in any investor’s portfolio.
Google Cloud continues to be a major growth engine
In its Q4’2023 earnings report, cloud continued to be the company’s growth engine, growing 26% on a year over year basis. In the fourth quarter, Google Cloud reaped $9.2 billion in revenue. The cloud platform also turned over an operating net profit, which was in stark contrast to years of not being profitable due to the intense competition in the space. Fourth quarter operating income landed at $864 million.
Google Cloud could benefit from the rise in quantum computing. Quantum computing will bring about the next computing revolution that could very well overshadow the prescient artificial intelligence craze. There are certain kinds of problems that are effectively impossible or inefficient for conventional, classical computers to solve, but not for quantum computers. While Google does have a physical quantum computer named “Sycamore,” many companies desiring to utilize quantum computing will find it desirable to be able to harness a quantum computer’s power via the cloud.
Google Cloud already hosts successful quantum computing start-ups like IonQ (NYSE:IONQ). In the long term, quantum computing could be an even bigger growth engine for Google, but for now, the cloud platform will continue grow as digital transformation tailwinds guide the business forward.
Google is Coming for Generative AI
Google’s AI platform Gemini will be a crucial part of the company’s growth in the short and medium terms. These days, chipmaker Nvidia (NASDAQ:NVDA) has received much spotlight for its role in making generative AI possible through its advanced chips, but other tech giants like Google are already trying to make significant inroads in harnessing the novel technology.
Last week, Alphabet stock hosted its Google Cloud Next event in Las Vegas, and instead of speaking about cloud infrastructure, the tech giant made the event about generative AI and the capabilities of Gemini. Along with a multitude of demos, Google Cloud announced several product enhancements that involve using generative AI.
Having generative AI clearly be the main focus of the event shows this is where Google will be spending a lot of resources in the future, and given all the AI craze going on, investors should be happy to hear that.
Valuation is Below Many Peers
The Nasdaq has risen more than 9.5% on a year-to-date perspective, and much of these gains, of course, have been tied to Nvidia, which boasts a weighty market valuation above $2 trillion. If you’re making an AI bet, Nvidia is one way to think about it, but Alphabet’s share price is also looking very attractive. While Nvidia trades at 34.5x forward earnings, Alphabet’s shares trade at 22.9x forward earnings. Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) trade at 43.5x and 33.9x forward earnings, respectively.
Given Google Cloud has become more profitable, and we still have yet to see the growth the Gemini AI platform can bring to the tech giant, Alphabet looks like a compelling tech invest to make right now.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.