Alphabet (NASDAQ:GOOG/NASDAQ:GOOGL) remains one of the best bets investors can make on the future of artificial intelligence (AI).
As it begins to monetize its AI offerings, GOOG stock is sitting at an all-time high. So far in 2024, the company’s share price has risen 10%, bringing its 12-month gain to 57%. However, investors shouldn’t worry that they’ve missed an opportunity with Alphabet. Analysts see plenty more runway ahead. At Oppenheimer (NYSE:OPY), analysts reiterated their “outperform” (buy) rating on the stock and raised their price target on the shares to $180 from $160 previously, implying 18% upside from current levels.
Monetizing AI Is Key
While admittedly still in the early innings of the AI revolution, the year ahead is a critical one for Alphabet as it begins to monetize its AI products and services. With its DeepMind laboratory, Alphabet continues to be a leader when it comes to the science behind artificial intelligence. But the company has also been racing to get AI models into the hands of consumers and businesses, providing the company with a new revenue stream moving forward.
Alphabet has been adding AI features across its various products, from its Google search engine to its Pixel watch and smart home assistants. Right before Christmas, the company unveiled its largest and most sophisticated AI model yet, called “Gemini.” The newest AI model from Alphabet can be used with both personal computers and mobile devices, and it is capable of a wide range of tasks that include answering questions, writing code and creating content.
Gemini is already being hailed as a breakthrough in AI as it has been found to outperform human experts on subjects such as math, physics, law and medicine. And Alphabet is charging users for the Gemini AI products as it begins to generate revenue from its various artificial intelligence ventures.
Other Business Units
Alphabet is also expected to benefit in the year ahead from an important recovery in online advertising revenue, which is still the company’s bread and butter. Alphabet’s last earnings report, which was for the third quarter of 2023, showed improvement in the online ad space. Advertising revenue from Google’s search engine rose 11% to $44 billion, while advertising sales at YouTube, Google’s video platform, climbed 12% to $7.95 billion. Both figures beat Wall Street’s expectations.
Analysts at Jefferies Financial Group (NYSE:JEF) recently reaffirmed their “buy” rating on GOOG stock and lifted their price target for the shares to $170 from $165 previously, saying that they think Alphabet will benefit this year from accelerated advertising revenue. The analysts also see a backlog at Google Cloud improving. If there’s a dark cloud hanging over Alphabet, it’s the company’s cloud computing business, which continues to trail rivals Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
Alphabet also continues to improve its profitability with aggressive cost controls. Earlier in January, the company warned staff that more job cuts are coming this year. In a memo, management said that further headcount reductions are needed as the company pours more resources into AI. Alphabet began cost cuts and staff reductions in 2023, eliminating 12,000 jobs, or about 6% of its global workforce, over the past 12 months. In recent months, it has cut hundreds of jobs in areas from engineering to advertising.
Buy GOOG Stock
Alphabet reports its Q4 2023 earnings on Jan. 30. If the company beats Wall Street estimates, look for the stock to breakout and run higher. Long-term, investors can continue to expect steady gains from the stock as the online advertising environment recovers, its cloud-computing segment gains ground, and various AI products become accretive to the company’s bottom line. While it has run far in the last year, there’s no reason to expect Alphabet’s share price to slowdown anytime soon. GOOG stock is a buy.
On the date of publication, Joel Baglole held long positions in GOOGL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
