Media and tech giant Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), like most tech stocks this year, has been blessed with the golden touch of AI. The stock has risen 51.5% YTD compared to the tech-led Nasdaq Index’s (NDX) gain of 39%. With a portfolio of robust brands, the new state-of-the-art Gemini AI launch, and more AI products on the way, I believe Google’s parent company will continue to boost its revenue and profits in the coming years, making me bullish on GOOGL stock going into 2024.
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Standing Strong amid Stiff Competition
While investors were concerned about Google Cloud’s performance in Alphabet’s third quarter, the company’s overall fundamentals remained strong. In fact, Google Cloud’s revenue jumped 22.5% year-over-year to $8.41 billion.
Analyst Scott Devitt believes the market may have overreacted to Google Cloud’s results, which missed the revenue consensus estimate of $8.62 billion. Notably, Google Cloud continues to expand rapidly. It currently ranks third in the cloud computing market, with an 11% market share, trailing Microsoft’s (NASDAQ:MSFT) Azure and Amazon’s (NASDAQ:AMZN) AWS (Amazon Web Services).
But note that Google Cloud added just 11% to the company’s top line in Q3. Alphabet has a strong portfolio of well-established platforms that are driving revenue.
For instance, Google Search continues to dominate the search engine market with a 91.54% market share. Notably, Google Advertising grew 9.5% year-over-year in Q3 to $59.65 billion, accounting for 78% of Alphabet’s total revenue. This includes advertising sales from YouTube, Google Search, and other services, as well as Google Network.
Total revenue in Q3 landed at $76.7 billion, an 11% year-over-year increase, while earnings per share (EPS) jumped 46.2% to $1.55 from the prior-year quarter. Both revenue and earnings exceeded consensus estimates.
Management highlighted in the Q3 earnings call that the company is significantly increasing its investments in many AI projects that are underway. Recently, the company gave a glimpse of that.
AI to Bring Good Fortunes in 2024
On December 6, Alphabet put an end to rumors that it might postpone the release of its most anticipated AI product until next year. It finally released Gemini 1.0, its cutting-edge advanced large language model (LLM).
According to the company, Gemini will be available in three variants: Ultra, Pro, and Nano. Gemini Pro and Nano are now available. Meanwhile, Gemini Ultra, which is designed to be the most powerful and capable of complex tasks, is still being tested. Alphabet intends to release it to “developers and enterprise customers early next year.”
According to the company, Gemini’s “sophisticated multimodal reasoning capabilities can help make sense of complex written and visual information.”
Furthermore, Alphabet announced that it has upgraded Bard through Gemini technology, with a more advanced version underway by early next year. It plans to incorporate Gemini with its other products, Google Search, Chrome, Ads, and Duet AI, in the next few months. Management believes that with Gemini, Google Search will be faster for users.
Microsoft’s investment in OpenAI in 2019 gave it a first-mover advantage in the AI race. Although Alphabet may be a little late to the game, industry experts, according to Reuters, believe Gemini has the potential to challenge ChatGPT.
What’s more, Wall Street seemed to like Gemini. Macquarie analysts noted that Gemini entered at an intriguing time when ChatGPT users have been complaining about new updates affecting quality.
Soon after the Gemini launch, Bank of America Securities analyst Justin Post reiterated his Buy rating on GOOGL. The analyst noted that with the integration of AI into its products, Alphabet stock has great upside potential. Looking at its AI prospects, analysts predict Alphabet’s revenue will increase from $282.84 billion in 2022 to $305.7 billion this year. In addition, earnings per share are forecast to jump by 26% to $5.74 for FY2023.
Is GOOGL a Buy, Hold, or Sell, According to Analysts?
After its Q3 results, Tigress Financial analyst Ivan Feinseth reiterated his Buy rating on GOOGL. According to the analyst, reaccelerating growth in Google Search and Alphabet’s advertising revenue will have a significant impact on Alphabet’s performance in the future.
Furthermore, the analysts anticipate that AI-enabled products will continue to “bolster Alphabet’s leadership position across key technology trends and business sectors.”
Overall, Wall Street is bullish on GOOGL, giving it a Strong Buy rating. Out of the 31 analysts covering GOOGL stock, 25 say the stock is a Buy, and six rate it a Hold. The average Google stock price target is $153.41, which is 15.5% above current prices.
The Key Takeaway
Gemini’s rollout will most likely boost Alphabet’s fortunes in the coming quarters, along with more AI products that are underway. Analysts predict an 11.3% increase in revenue and a 16.2% increase in EPS in 2024.
Trading at 20.2 times forward earnings and 5.0 times forward sales for 2024, Alphabet is still a reasonable growth stock with long-term AI prospects, which is probably why Wall Street expects upside potential of 15.5% by the end of next year.
Alphabet’s platforms, such as Google Search, YouTube, and Gmail, have cemented their positions among global users. I believe that by incorporating AI, Alphabet can strengthen its already strong portfolio while increasing profit margins, making it a compelling tech choice for long-term investors.
Moreover, TipRanks has also assigned a Perfect 10 Smart Score to GOOGL, implying that the stock has a high chance of beating the broader market.
