With the release of its new artificial intelligence model “Gemini,” Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) has propelled itself into the lead of the global AI race and made GOOGL stock a must-have.
Gemini represents the largest and most sophisticated AI model yet, and it is far ahead of the ChatGPT and GPT-4 chatbots released by rival OpenAI. The Gemini model allows Alphabet to monetize its AI technology, as analysts have hoped. The company’s stock jumped 5% after Gemini’s release, the stock’s best one-day performance since Aug. 29. GOOGL stock is now up 52% in 2023.
GOOGL Stock and AI
Until now, Alphabet had been playing catch-up on AI. While the company had long been a leader in the theoretical pursuit of AI through its DeepMind laboratory, it was surprised by the release of ChatGPT a year ago. The viral popularity of chatbots led Alphabet CEO Sundar Pichai to issue his famous “code red” alert across the company, saying everyone needed to work overtime to rush AI products to the marketplace.
Since then, Alphabet has released a chatbot called “Bard” that has similar capabilities to ChatGPT and GPT-4, and announced plans to integrate AI into its Google internet search bar and across its platform of smart home devices. But nothing has caught fire for the company like Gemini has since it was unveiled on Dec. 6. Videos of Gemini answering complex questions and identifying visual images quickly went viral online and sent GOOGL stock soaring.
AI Supremacy
In unveiling Gemini, Alphabet showed the technology analyzing hundreds of pages of research data and then updating a chart, as well as analyzing a child’s math homework and identifying the right answers.
Gemini is also reportedly the first AI model to outperform human experts on subjects such as math, physics, and medicine. It can also reportedly understand nuance and reasoning in complex situations. Alphabet says it plans to integrate Gemini into its Bard chatbot to help advance its reasoning skills.
Gemini can be used with both personal computers and on mobile devices, and it is capable of a wide range of tasks that include answering queries, writing code, and creating content.
The technology can also help developers create other AI applications. Equally important, the company said it plans to eventually charge users for the Gemini AI product, starting with developers, as it begins to monetize its generative AI products and use them to boost its financial results.
Other Bets
While the focus at Alphabet, and for the market, is clearly on AI, the company also continues to succeed in its other ventures that include everything from online advertising to smartphones and its “other bets.” Alphabet’s third-quarter financial results were extremely strong and showed year-over-year revenue growth of 11%, returning to double digits for the first time in more than a year.
Alphabet reported Q3 earnings per share (EPS) of $1.55 versus a predicted $1.45. Revenue totaled $76.69 billion beating the $75.97 billion expected.
The company’s return to double digit revenue growth was fueled by a rebound in online advertising. For Q3, the company reported advertising revenue of $59.65 billion, up 10% from $54.48 billion a year earlier. YouTube’s advertising revenue was strong, coming in at $7.95 billion and beating estimates.
If there was one blemish on the Q3 print it was that Alphabet’s cloud-computing unit reported revenue of $8.41 billion, which was $20 million less than analysts’ had forecast.
Cloud-computing has been a key area of investment for Alphabet and is becoming more important with the emergence of AI as companies rely on the public cloud to run big computational workloads. However, even though the cloud unit disappointed, it still grew 22% from a year earlier and swung to a profit of $266 million after losing $440 million a year earlier.
Buy GOOGL Stock
Artificial intelligence has become the dominant trade in the market and it’s getting hard for investors to avoid the technology or the companies driving it forward. Among the AI players, Alphabet is out front and a clear winner.
With OpenAI in disarray following its recent board battle, Alphabet has emerged as the de facto AI leader with its new Gemini model.
Going forward, Alphabet has the resources, expertise, and ambition to continue leading in the global AI race. Investors wanting to place a long-term bet on the future of artificial intelligence, should bet on Alphabet. GOOGL stock is a buy.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
