With Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) poised to become a big winner in the AI Revolution, GOOG stock looks quite attractive at its current relatively low valuation. AI will make the company’s core search and ads businesses significantly more lucrative, and the technology should also meaningfully boost other existing offerings provided by Alphabet. Among the products in the latter category are Google Cloud and its Pixel smartphones.
Meanwhile, Alphabet’s core ad business should continue to benefit from marketers’ increased optimism about the economy in the future.
Given these powerful, positive catalysts, the forward price-earnings ratio of GOOG stock, which is currently 20, is quite attractive.
Alphabet’s Gemini AI Offering Looks Poised to Succeed
Alphabet’s new AI offering, Gemini, has a number of very compelling attributes. According to analysts at Citi, there are “Ultra, Pro, and Nano” versions of Gemini. Ultra is designed to carry out in-depth, complicated endeavors, and Pro is more of a generalist, while Nano is made to be utilized on devices that can carry out AI independently.
This specialization, which I have not seen from other companies, should generally make Gemini more effective than competing AI tools when completing tasks and satisfying users.
Speaking of more effective, Gemini received a 90% on the “Massive Multitask Language Understanding benchmark,” coming in significantly above the 86.4% score obtained by the latest version of ChatGPT.
And finally, another feature of Gemini, which I believe may be unique, is that it “can recognize videos, images, text, and voice simultaneously,” Seeking Alpha reported.
Gemini Will Help Alphabet in Many Ways
Due to the effectiveness of Gemini, I believe consumers will use the Google search engine much more frequently than they do now. That’s because the AI offering will quickly and directly answer users’ questions instead of making them look through multiple websites to find the information they seek.
As a result, marketers will be willing to pay more for ads on Google. Additionally, Gemini’s ability to recognize different media types simultaneously could facilitate searches. For example, a user could input a picture of a Taylor Swift concert and ask Gemini to determine the date it took place.
Additionally, AI will enable marketers’ ads on other Google products, such as YouTube, Display, and Gmail, to be more targeted and, consequently, more effective.
Also noteworthy is that the AI Revolution should meaningfully boost Google Cloud. That’s because, like AWS, Amazon’s cloud unit, Google Cloud will be able to sell “many new, AI-oriented services” to its customers.
And finally, the Nano version of Gemini will make Alphabet’s hardware devices, such as its Pixel smartphones, much more attractive.
U.S. Ad Spending Growth Looks Poised to Accelerate
With inflation and interest rates dropping, U.S. companies will likely grow more secure about the future and, consequently, spend more on advertising. Indeed, that trend already appears to be materializing, with research firm Wall Street Insights recently raising its forecast for 2023 ad spending growth, “excluding political ads, ” to 5.9% from 5%. For the same metric in 2024, the firm increased its outlook to 5.2% from 4.3%.
Additionally, ad spending next year should get a big lift from the many U.S. elections that will take place in 2024.
Since GOOG stock is one of the top generators of digital ad revenue in the U.S., its top and bottom lines should be boosted as ad revenue growth strengthens.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
