For most tech stocks, excitement for them related to the AI mega-trend has cooled since the summer, but that’s not the case when it comes to shares in Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL). GOOG stock has kept rising, has just recent hit a new 52-week high.
This strong near-term performance compared to peers is not that surprising. As you may recall, the Google and YouTube parent has been a bit late to the game when it comes to capitalizing on the generative AI mega-trend.
Still, while late to the game, the company has made progress in its efforts to play catchup. This AI-related progress has helped to bolster investor confidence. It also has kept GOOG on an upward trajectory as top AI plays like Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA) pull back.
The question now, however, is whether this rally will continue. Let’s take a closer look.
GOOG Stock and Alphabet’s AI Endeavors
For much of 2023, the perception was that Microsoft, thanks to its partnership with ChatGPT developer OpenAI, would gain a serious advantage over Alphabet in AI. It was hard not to jump to this conclusion.
Microsoft was successfully integrating generative AI into platforms like its Bing search engine. Alphabet’s answer to ChatGPT, Bard, failed to impress at its initial unveiling. Flash forward to now, however, and that negative perception about GOOG stock and its AI potential has by-and-large faded away.
Microsoft for now remains the top dog, yet Alphabet’s progress in this area over the past few months has been substantial.
For instance, like I discussed back in August, the company has launched several generative AI applications, including what can be best described as an AI-powered life coach.
Just this week, Alphabet launched Bard Extensions. Think of it as a sort of chatbot for your Google account. Type in a query, and Bard Extensions can fetch the relevant information from Gmail, Google Docs, Google maps, et cetera.
While behind the eight ball at the start of 2023, it’s become obvious that Alphabet is anything but an “AI also-ran.”
What Lies Ahead for Shares?
The market has picked up that this company has more to gain than lose from the rise of generative AI. After briefly falling to double-digit prices following the Bard fiasco, GOOG stock has rallied by a solid 36.2% over the past six months.
Again, while other AI stocks have pulled back, this rally has carried on. Shares are now back at price levels not seen since the early stages of the 2022 tech stock sell-off.
Yet while this rebound has been good news for those who bought in near the lows, will shares keep climbing, or is a reversal in the cards?
Much like with Microsoft, it’s going to take time for AI to have a major impact on Alphabet’s fiscal results. At first, that may suggest that GOOG is vulnerable to a pullback, as the excitement surrounding shares today fades.
Fortunately, while capitalizing on this trend will take time to take shape, there are two catalysts that may help the stock to first sustain, then add to, its gains from recent months.
First, the continued rebound in digital advertising demand. Second, the positive impact of cost savings efforts implemented over the past year.
Bottom Line: There’s Still Plenty in Play
As seen in the Q2 2023 results for Alphabet and its peers, the digital ad business is in recovery mode.
We won’t know for certain until big tech has its next wave of earnings releases (in late October), yet if this trend continues, investors could keep bidding up GOOG, in anticipation of the company continuing to meet/beat expectations in subsequent quarters.
You may think that the impact of Alphabet’s aggressive downsizing efforts is already reflected in results. That may not be the case.
The company continues to make tough-but-necessary decisions that will help it stay an efficient, highly profitable enterprise. These efforts could also help maintain its streak of earnings beats.
Add in the potential for additional AI-related breakthroughs, and the takeaway is clear. There’s plenty in play to keep GOOG stock moving in the right direction.
GOOG stock earns a B rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place