Artificial intelligence (AI) has exploded in popularity over the past year, and its spread has caught many in the tech world off guard. To be clear, artificial intelligence, in its broadest sense, has been around for decades, but the latest algorithms have truly taken it to the next level. Generative AI is now being used to streamline processes and produce original content, and the resulting productivity gains are driving rapid adoption.
Senior Wedbush technology analyst Dan Ives said that this technology will trigger the “fourth industrial revolution” and further pointed out that “artificial intelligence is the most transformative technology we have seen since the Internet began to form.”
While some may think this statement is exaggerated, it is becoming widely accepted throughout the tech industry. Even conservative estimates suggest that generative artificial intelligence By the end of the century, this number will reach $1 trillion. Companies that profit from these long-term upsides will likely share in the resulting windfall, and shareholders will ultimately be rewarded.
There are plenty of AI-focused stocks to choose from, but one I’m particularly excited about is letter (NASDAQ: Google) (NASDAQ: Google).
King of the hill, in many ways
It’s important to put Alphabet’s AI opportunities in the context of its overall business.
The company rose to prominence with its industry-leading Internet search. Google has long dominated the industry and currently controls about 92% of the market, according to Internet statistics aggregator StatCounter. Google’s algorithm is unparalleled in search, and its results are widely considered the standard by which all other searches are measured.
The company’s online search serves as a funnel for Alphabet’s digital advertising business. According to data from online industry publication Digiday, Google will lead the market with 30% of global digital advertising sales in 2022. But the final totals for 2023 have not yet been tallied, and Google is unlikely to give up most of its market share.
Macroeconomic headwinds affecting digital advertising are starting to recede, which is good for Alphabet. In fact, a rebound is already starting to appear. Google’s ad sales grew in 2019 after several consecutive quarters of year-over-year declines. In each of the past three quarters, this suggests the recovery is gaining momentum.
Perhaps most important is Alphabet’s position as the third-largest cloud provider in cloud infrastructure services.The company continues to lag Amazon Internet services and Microsoft Azure ranks first and second respectively. However, for much of the past few years, Google Cloud has been the fastest growing of the Big Three, although it recently ceded that title to Microsoft.
Some market observers believe the speed with which Microsoft has rolled out artificial intelligence to cloud customers has helped the company gain market share. Alphabet has since launched its own artificial intelligence product suite, with year-on-year growth reaching 26% in the fourth quarter, up from 22% in the third quarter last year. Its growth is likely to accelerate on this basis.
The beginning of something big
Alphabet has long been at the forefront of artificial intelligence, deploying sophisticated algorithms to surface relevant search terms and successfully target ads. The company’s expertise in this area forms the foundation for its recently launched suite of next-generation AI services.
Its Vertex AI platform offers more than 100 pre-built AI models. Google Cloud customers can use these models to accelerate their development processes to build and scale AI-powered applications. Google also launched Duet AI to help users improve work efficiency on Google Cloud. The service has been deeply integrated into Google’s wide range of products and services.
In early December, the company launched Google Gemini, billed as the company’s largest artificial intelligence model. This multimodal system is designed to understand information from a variety of sources, including text, audio, images, video and computer code. Published data shows that its leading model, Ultra, “exceeds current state-of-the-art results on 30 of 32 widely used academic benchmarks used to evaluate artificial intelligence performance.”
As one of the world’s largest cloud infrastructure providers, Google is positioned to provide artificial intelligence services to its cloud customers. Needham analyst Laura Martin believes that generative artificial intelligence will help Alphabet increase its market value to $3 trillion in the next few years, an increase of about 65% compared with Wednesday’s closing price.
Alphabet is the global leader in search and online advertising, and a strong competitor in cloud computing. Coupled with the opportunities represented by AI, it is not difficult to see the huge potential in the future.
However, one of the most compelling reasons to buy Alphabet stock right now is the price. The stock is quite cheap, trading at about 25 times earnings, which is lower than the company’s price-to-earnings (P/E) ratio of 27 times. S&P 500 Index –Although Alphabet stock has risen more than twice as much as the broader market over the past 10 years.
Given the magnitude of the opportunity, I don’t expect the sale of Alphabet stock to last long.
Should you invest $1,000 in Alphabet right now?
Before buying Alphabet stock, consider the following factors:
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John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool; Suzanne Frey is an Alphabet executive and a board member of The Motley Fool. Danny Weiner Holds positions at Alphabet, Amazon and Microsoft. The Motley Fool has positions and recommendations at Alphabet, Amazon, and Microsoft. Motley Fool at disclosure policy.
A once-in-a-lifetime investment opportunity: an artificial intelligence (AI) growth stock worth buying now and holding forever Originally published by The Motley Fool