Google parent company Alphabet (NASDAQ:GOOG/NASDAQ:GOOGL) is scheduled to report third-quarter financial results today, and investors may want to double down on the stock ahead of the upcoming print.
GOOG stock rose 7% immediately after the company announced better-than-expected earnings in late July. And a growing number of analysts are turning bullish on the company and its stock due to a combination of factors that include Alphabet’s leading position in artificial intelligence, and an improving market for online advertising. As such, investors may want to load up on the stock with only a day left before the company releases its Q3 numbers.
AI Powerhouse
A recent report from venture capital firm Accel claims that U.S. technology giants such as Nvidia (NASDAQ:NVDA) and Alphabet have seen $2.4 trillion added to their market capitalizations this year due to hype surrounding AI.
As a leader in the red hot field, Alphabet has been a clear beneficiary of the AI boom, with its stock rising 52% year to date. With its DeepMind AI research unit, Alphabet is widely regarded as having the most advanced theoretical and practical AI research and technology in the world. Many of the top AI scientists work at Alphabet.
The company is wasting no time releasing new AI products at a fast and furious pace. Since early September, Alphabet has introduced a host of new AI technologies.
These have included a new generative AI software product called “Gemini” that is a conversational AI platform aimed at competing directly against privately held OpenAI’s ChatGPT and GPT-4 chatbots.
Gemini can summarize text and generate original content based on user prompts, similar to other AI chatbots. Gemini can also write and read back emails, compose song lyrics, and write news articles. The new AI software is expected to help engineers write code.
More recently, Alphabet announced that it is adding AI technology to its suite of digital assistants and smart home devices. In the future, generative AI will be integrated into the company’s digital assistant software.
This will enable people to give their digital assistants and connected home devices voice prompts to carry out tasks such as setting timers, making hands-free phone calls, and typing and sending text messages.
At the same time, Alphabet is trying to be responsible with AI, testing a new digital watermark that could potentially identify images created using the technology. The company says the watermark is being developed by DeepMind and is aimed at countering disinformation.
Other Issues
If there’s one negative for GOOG stock right now, it is the landmark antitrust case brought against the company by the U.S. government that is now playing out in court.
Antitrust regulators are taking Alphabet to court over the dominance of its Google search engine that has become the world’s primary gateway to the internet. The legal case represents the biggest U.S. antitrust trial since regulators took on Microsoft (NASDAQ:MSFT) in the late 1990s.
The trial is scheduled to run through the end of November with a ruling expected in early 2024. If it’s determined that Google has broken the law, a second trial will be held to decide what measures should be taken to reign in the technology giant.
While not without risk, the antitrust trial is unlikely to harm Alphabet over the long-term any more than it hurt Microsoft.
The trial doesn’t take away from the fact that Alphabet remains an online juggernaut, generating $224 billion a year in advertising revenue tied to its search engine. Today, Alphabet controls 90% of the internet search market.
That dominant position, and online advertising revenue, continue to drive Alphabet’s earnings. JPMorgan Chase (NYSE:JPM) recently put out a note saying that the online advertising market strengthened through Q3 of this year, and the bank believes that AI initiatives are improving advertiser returns. JPMorgan’s top advertising pick is Alphabet.
Beyond AI and online advertising, GOOG stock is also getting a boost from growth in Alphabet’s cloud-computing unit. In Q2 of this year, Google Cloud’s revenue totaled $8.03 billion compared to $7.87 billion that was forecast.
The cloud computing division has reported increasing revenue ever since it turned profitable in mid-2022. The company singled out its cloud-computing unit as a key revenue driver in Q2 of this year.
Alphabet is also seeing growth in its “Other Bets” division that includes the Waymo self-driving car division and the Verily life sciences unit. Revenue in the Other Bets unit rose 48% year-over-year to $285 million in Q2.
Buy GOOG Stock
Alphabet has a lot of momentum behind it right now. Not only is the company a leader in AI, but the online ad market is improving and revenue from cloud-computing and its other ventures is also on the rise.
The antitrust case against the company is a dark cloud in an otherwise sunny sky, but it is unlikely to stop Alphabet’s growth trajectory. With Q3 results on deck, GOOG stock is a buy.
On the date of publication, Joel Baglole held long positions in GOOGL, NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
