Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has been mostly left out of the tech rally this year. Note that the return is a meager 5%. In fact, Google stock is off about 14% since late April.
By comparison, Microsoft (NASDAQ:MSFT) has 35% and Facebook (NASDAQ:FB) is up a sizzling 47%, but I think there is an opportunity for investors with GOOGL stock. One of the catalysts is actually something that does not get enough attention: Artificial Intelligence.
This technology has become strategic and is seeing a constant stream of innovation. Based on analysis from Tractica, the revenues from AI are forecasted to go from $9.5 billion in 2018 to a whopping $118.6 by 2025. No doubt, this is something that should move the needle for Alphabet stock.
In the company’s latest earnings report, CEO Sundar Pichai had the following to say about the opportunity:
“We’ve always been a company that’s focused on the long-term, willing to make investments that will help our businesses and our customers’ businesses succeed as technology continues to evolve. You saw this in the transition to mobile computing years ago and we’re seeing that today in the shift to AI.”
Google Stock and the AI Moves
From its early days, Google has invested heavily in AI. Keep in mind that the technology has been critical in evolving the core search engine.
The company has also pulled off a myriad of acquisitions to bulk up its AI capabilities. For example, with the deal for DeepMind, there has been a string of breakthroughs: an AI system that beat the world champ in Go; algorithms that have realized major cuts in energy usage for data centers; and technology to improve disease detection.
Then there was the development of TensorFlow, which has become the standard platform for creating AI models. Google open sourced it in late 2015, which accelerated progress across the industry.
Given all this, it should be no surprise that the company has been able to recruit some of the world’s most talented AI experts, researchers and engineers. Perhaps the most prominent is Geoffrey Hinton, who has been a driving force in building deep learning systems.
Google Stock and Autonomous Driving
Of course, the most prominent AI investment at Google is Waymo, which is the company’s autonomous vehicle division. The development of the technology was early, back in 2009. This head start has allowed Waymo to become a global leader. And yes, a critical part of this is the data.
There are over 10 million self-driving miles across public highways. Waymo has also created a ride-sharing service, taking on Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), that is available in Phoenix.
But the goal is to essentially license the technology and data. To this end, Waymo has entered a partnership with Renault SA (NASDAQOTH:RNSDF) and Nissan Motor (NASDAQOTH:NSANY).
Now it’s true that the autonomous driving market will take time to evolve, as there are complex regulations and technology issues to work out. But it seems like a good bet that Waymo will get a sizeable chunk of the opportunity.
Bottom Line on Google Stock
Going forward, Google will likely pull off more AI deals. Just look at last month’s $2.6 billion acquisition of Looker. The deal will allow Google to enter the lucrative market for BI (Business Intelligence).
Now when it comes to companies in hot categories like AI, the valuations are usually steep. But this is definitely not the case with Google stock, with the forward price-to-earnings multiple at 21X. This is fairly reasonable for a company that is continuing to grow, has a wide assortment of marquee assets and has a powerful AI business.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
