Amid the emergence of generative artificial intelligence, Google parent Alphabet (GOOGL) stands out as a tech industry leader. But generative AI presents new opportunities as well as risk for GOOGL stock.
Industry Insights, we’re counting down to 2024 with new investment themes and strategies. Blackrock U.S.’ Jay Jacobs discusses the role big tech incorporating artificial intelligence will play in the markets. We also break down how potential interest rate cuts will influence investors.” data-nosnippet=”true” data-permalink=”https://www.investors.com/ibd-videos/videos/artificial-intelligence-interest-rate-cuts-how-investors-can-win-big-in-2024″ jw-video-key=”vUZ3ScDt” vid-authors=”MEREDITH HEYMAN” vid-cat=”Industry Insights” vid-date=”12/22/2023″ vid-date-tmsp=”1703245977″ vid-dom-id=”8849680-65c5e25a13e11″ vid-id=”8849680″ vid-image=”https://10xwealthreport.com/wp-content/uploads/2024/02/echo/vUZ3ScDt-640×360.jpg65c5e25b116ac.jpg” vid-name=”From Artificial Intelligence To Interest Rate Cuts, Here’s How Investors Can Win Big In 2024″ vid-repeat=”1″ vid-top=”false” vid-url=”https://content.jwplatform.com/manifests/vUZ3ScDt.m3u8″ vid-width=”50″> X
Meanwhile, Google stock sold off on its fourth quarter earnings report. GOOGL stock has gained 2.5% in 2024 as of Feb. 6.
Alphabet reported fourth quarter earnings and revenue that topped consensus estimates but advertising revenue slightly missed views amid worries over the internet search business.
GOOGL Stock: Higher Capital Spending
Wall Street analysts hiked 2024 capital spending estimates in the wake of Google management commentary on rising AI investments.
At Morgan Stanley, analyst Brian Nowak said in a report: “Capex is heading higher, but we see a leading gen AI pipeline and incremental cloud and subscription revenue opportunities.”
YouTube TV has more than 8 million paying subscribers, up from 5 million in 2022, Google said in a blog on Feb. 6. That makes Google TV the fourth biggest provider of internet TV services. YouTube TV acquired rights to National Football League’s NFL Sunday ticket last fall. The move has boosted subscriber growth.
Meanwhile, Google is gaining ground versus TikTok in short-form video. YouTube Shorts now generates roughly 70 billion daily views.
Despite mounting competition in AI and internet search, Google stock advanced 58% in 2023. That’s better than the 43% jump in the Nasdaq composite. The S&P 500 rose 24%.
Also, Google stock is among AI stocks to watch.
Meanwhile, cost cutting continues at parent Alphabet.
“We continue to expect the key investor debates going forward to be centered around the future of search, the potential for operating margin outcomes with management’s focus on long-term costs structure, and the level of long-term investments needed around data centers and technical infrastructure,” said Goldman Sachs analyst Eric Sheridan in a report.
Court Rulings Hit Google
After a big legal defeat by Fortnite maker Epic Games, Alphabet may need to open up its wireless App Store to competition. But the case could be heading to the Supreme Court.
In another legal setback, Google has agreed to pay $700 million and make certain changes to its app store, as part of a settlement with a group of states.
Meanwhile, a ruling in the Justice Department’s nonjury antitrust trial vs. Google is pending. The government alleges Google maintains an internet search monopoly “through exclusionary distribution agreements that steer billions of search queries to Google each day.”
Google’s payments to Apple (AAPL) are under scrutiny in the anti-trust lawsuit.
If Google loses, U.S. District Judge Amit Mehta could order a Google breakup or changes to the way Google promotes its search engine. A ruling may not come until early 2024. Google will likely appeal any court decision.
Google Stock: AI Battle Rages
In addition, Google aims to counter Microsoft‘s (MSFT) investment in artificial-intelligence startup OpenAI by making its own generative AI tools available to software developers. One big question is how integrating chatbot AI technology into search queries will impact advertising revenue.
In early December, Google unveiled its much-anticipated, next-generation, large language model (LLM) called Gemini.
Google’s cloud-computing unit claims to be working with 70% of generative AI startups. Also, Google’s cloud unit is developing close ties with Salesforce (CRM), one of the biggest enterprise software makers.
At the Google I/O 2023 developers event, Alphabet showcased how generative AI will be integrated into search, maps, Workspace, photos, cloud computing and Android devices. Google discussed how advertising will evolve as generative AI is added to search.
Google’s board of directors has authorized an additional $70 billion in stock repurchases.
Google Stock: TikTok Pressures YouTube
YouTube Chief Executive Susan Wojcicki in February 2023 announced her departure. She was replaced by longtime YouTube executive Neal Mohan.
Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2024, analysts say.
Due to its huge cash holdings, Google stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.
The internet giant completed a 20-for-1 split for shares of Google-parent Alphabet after the market close on July 15, 2022.
Boosting Ad Business Through E-Commerce
Alphabet aims to boost its advertising business through e-commerce-related internet search. At the same time, it hopes to chip away at Amazon.com‘s (AMZN) dominance in product search.
Google’s internet search business will hold up better than other advertising formats, such as social media, analysts say.
Google has rolled out the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Gmail, maps and other applications. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.
In a near-term boost for its advertising business, Google has delayed phasing out internet cookies to 2024.
Google Stock: Artificial-Intelligence Prowess
Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015. The restructuring move separated Google’s core internet advertising business from so-called moonshots, such as autonomous vehicles and the Verily Life Sciences unit.
In March 2022, Google spun off its quantum-computing technology group as a separate company.
Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products.
At a Google developers conference in mid-May, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.
With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver.
Under Chief Executive Sundar Pichai, Google has improved transparency. Google began disclosing cloud-computing financial metrics with its fourth-quarter report in fiscal 2020. But the cloud business has yet to turn a profit. And YouTube’s profitability still remains a mystery.
Google Stock Fundamentals
Alphabet’s Q4 earnings jumped 56% to $1.64 a share under generally accepted accounting principles, also known as GAAP. Gross revenue rose 13% to $86.31 billion.
Analysts polled by FactSet had projected EPS of $1.60 on revenue of $85.25 billion.
Also, Google’s Q4 advertising revenue rose 11% to $65.52 billion, just below estimates of $65.82 billion.
Wall Street analysts polled by Factset now estimate Google’s 2024 capital spending at $41 billion, up 25% from last year. Some estimates are higher.
Google said Q4 cloud-computing revenue rose 25% to $9.19 billion, topping estimates of $8.94 billion. Google’s cloud-computing business posted 22% growth in the September quarter.
Meanwhile, YouTube ad revenue rose 15% to $9.2 billion, in-line with estimates.
In Q4, Google repurchased $16.2 billion of its own stock. In the September quarter, it repurchased $15.78 billion.
Waymo Autonomous-Vehicle Business
A key question for investors is how much should Google’s self-driving-car project Waymo and “Other Bets” such as the Verily Life Sciences unit figure into valuation.
In early 2018, some Google stock analysts projected Waymo’s long-term valuation in a wide range of $75 billion to $125 billion. Expectations for autonomous vehicles, though, have been sharply lowered.
Waymo in 2021 raised $2.25 billion in funding from outside investors. including private equity firm Silver Lake, the Canada Pension Plan Investment Board and Abu Dhabi’s Mubadala investment arm.
While Google did not disclose Waymo’s valuation in the funding round, reports said it was only $30 billion. It could be lower now.
Google Stock: Cloud, Hardware, Security Acquisitions
Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.
Also, Google’s acquisition of smartwatch maker Fitbit closed in January 2022. The $2.1 billion purchase should help Google make a push into the health and fitness market, analysts say.
Google’s cloud-computing business, meanwhile, faces tough rivals in Amazon and Microsoft.
Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.
In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.
More acquisitions to boost Google’s cloud business could be coming, analysts say. Google acquired cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.
Google Stock: Is It A Buy Now?
GOOGL stock jumped 65% in 2021. But in 2022, Google stock dropped 39%.
Also, Google’s Relative Strength Rating stands at 86 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Google stock holds an Accumulation/Distribution Rating of C-plus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Further, shares hold an IBD Composite Rating of 97 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.
From a cup-with-handle base, Google stock forged a 139.42 buy point. GOOGL stock trades near its 50-day moving average. Investors should look for a bounce off the 50-day line. If that happens, Google stock may be actionable again.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
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