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Investors are becoming more optimistic about Alphabet Inc.’s artificial intelligence strategy, after a run of glitches and misfires that sent its shares tumbling.
The stock is heading back toward what would be a record $2 trillion market value — a milestone surpassed only by Microsoft Corp., Apple Inc. and Nvidia Corp. in the United States. It has rallied back from last month’s low, when the shares dropped on concerns the company was falling behind in AI.
Using this week’s cloud event to show that its AI model is enterprise-ready despite recent stumbles in its consumer-facing tools, focus is now turning to this month’s earnings and a developer’s conference in May. While Alphabet’s path to AI monetization is still seen as cloudy, the stock’s relatively cheap valuation has kept it attractive to many on Wall Street.
Alphabet’s misfiring Gemini product had been viewed as a major setback for a firm known for its technological prowess, with the company in February pausing an image generation feature that drew criticism over inaccurate historical depictions of race.
News that Apple Inc. is considering using Google’s Gemini technology to power AI services added more fuel to the rebound. Up to the last close, shares are up 12% this year.
“Google’s hardware advances, Gemini progress, and AI driven app demos should help sentiment on AI capabilities,” Bank of Amercia Corp. analyst Justin Post wrote in a note Tuesday. “We see Cloud as positive driver for stock given AI credibility, faster growth, improving margins.”
The stock trades at 21 times forward earnings, below Microsoft’s 33 times, and about the same as the S&P 500 Index. Alphabet shares rose 0.7% on Thursday.
Still, not all are convinced by the discount, despite “plenty of people that are making the argument that it’s so cheap right now,” said Michael Lippert, vice president and portfolio manager at the Baron Opportunity Fund.
Given the competitive search space, Alphabet “should be investing every single dollar at a higher ROI (return on investment) into their own businesses,” he said.
For now, the company’s updates have at least offered investors some encouragement. JP Morgan Chase & Co. analyst Doug Anmuth noting this week that he expected Gemini integration to result in more than 20% revenue growth for Google Cloud.
First Published: Apr 11 2024 | 10:39 PM IST
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