Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) remains among the top mega-cap growth tech stocks investors focus on, mainly for the company’s dominance of the online advertising space. Additionally, GOOG stock’s AI capabilities have provided investors with yet another catalyst to rely on as the tech sector continues to see interest from growth investors despite what appear to be relatively high multiples.
The company’s recently reported earnings have strengthened Alphabet’s allure, though the results were somewhat mixed. Many investors were disappointed by Alphabet’s better-than-expected results. Revenue from the company’s Cloud segment reached $8.4 billion, 22% year-over-year growth, but fell short of Wall Street expectations. On these results and other factors, GOOG stock dipped 6% in the past month to as low as $122 per share last week.
Despite this, Alphabet’s strong presence in Google Search and use of AI make it a solid long-term investment. The current dip presents a buying opportunity, as Alphabet’s diverse product portfolio remains in demand.
Key Factors to Watch with GOOG Stock
Amid the rise of generative AI, Alphabet emerged as a tech industry leader. This technology brings both opportunities and risks for GOOG stock. Despite increasing competition in AI and internet search, GOOG stock gained 38% this year, outperforming the Nasdaq’s 22% rise.
However, third-quarter results saw Google stock decline due to its cloud unit missing revenue growth expectations and facing competition from Microsoft’s Azure.
The nonjury antitrust trial against Google began on September 12. It centers on Google’s alleged internet search monopoly due to exclusionary distribution agreements, including a $26 billion payment as the default search engine. A ruling may arrive in early 2024, posing competition-related concerns for GOOGL stock.
Alphabet and AI
Alphabet, formerly known as Google since its restructuring in 2015, diversified its core advertising business from its moonshot bets in its financial statements a while back. In March 2022, the company went further, separating its quantum-computing tech group. AI powers Google’s digital advertising, Google Cloud, YouTube, and consumer hardware. GOOGL stock is among AI stocks to monitor, and this will remain a key segment investors will want to focus on moving forward.
AI promises to enhance Google’s search engine, potentially boosting user engagement and ad revenue positively impacting GOOG stock. AI generates summaries responding to specific search queries, providing users with more relevant results than scrolling through headlines.
Alphabet’s Fundamentals
In Q3 2023, Alphabet reported $77 billion in revenue, up 11% from the previous year. Operating income reached $21.34 billion, with a net income of $19.69 billion. CEO Sundar Pichai emphasized AI-driven innovations across various products, focusing on making AI more helpful.
Alphabet’s advertising revenue reached $59.65 billion but fell short of expectations due to economic challenges and competition from TikTok. To stay competitive, Alphabet invested $2 billion in AI startup Antropic, rivaling Amazon’s $4 billion investment in the same company. Antropic’s AI model, Claude 2, is poised to surpass models like Microsoft-backed OpenAI’s ChatGPT.
Additionally, YouTube ad revenue reached $7.95 billion, Cloud revenue was $8.41 billion, and “Google other revenues,” which include hardware and non-ad YouTube earnings, amounted to $8.34 billion. The “Other Bets” category reported $297 million in revenue while still showing a loss of $1.19 billion. Investors should watch some intriguing high-upside plays in this segment, but for now, Alphabet has done a good job of limiting its spending to a relatively reasonable range.
Alphabet Will Continue to Grow
In 2022, Alphabet’s ad revenue slowed down due to macroeconomic challenges. To counter this, Google invested in YouTube subscriptions. This strategy worked, as ad growth rebounded in 2023 with a stable macro environment and rising YouTube subscribers.
Alphabet’s short-term growth has steadied, but long-term hurdles persist. Generative AI platforms, antitrust probes, and macroeconomic challenges loom. Nonetheless, Alphabet’s history of overcoming hurdles suggests it can achieve stable growth through 2025 by enhancing its ecosystem with AI features, efficient ad products, cloud services, and subscription plans.
I think that GOOG stock remains among the more attractive mega-cap tech bets over the long term due to its dominance in its core markets, moonshot upside, strong balance sheet, and favorable valuation. Long-term investors would do well to consider this stock for much more than its improving AI capabilities.
On the date of publication, Chris MacDonald 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.
