Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) stock still has a lot to prove on the generative artificial intelligence growth trend. This has been a big reason behind its choppy performance. It’s not as if other “Magnificent Seven” stocks haven’t encountered some resistance over the past few weeks. However, GOOG stock has been more of a roller coaster ride.
In recent weeks, this mega-cap tech stock has zigged-zagged as the market weighs both positive and negative headlines regarding the company. This does not necessarily mean you should stay away.
GOOG Stock and Its Recent Mixed Performance
In contrast to the range-bound price performance of its Mag-7 peers (driven mainly by valuation and growth sustainability concerns), Alphabet shares have encountered more volatility because of greater company-specific concerns. I’m talking, of course, about the rocky debut of Gemini AI, Alphabet’s “answer” to OpenAI’s ChatGPT chatbot.
As noted previously, the controversy surrounding some of the chatbot’s responses to queries heightened investor fears about the company’s strengths as a gen AI contender. Yes, damage control from management is perhaps helping to assuage concerns. This may explain why GOOG stock has climbed back up to prior prices.
Dipping from $150 down to the low-$130s per share because of the controversy, since early March shares have surged back to the $150 per share mark.
Still, that’s not to say Alphabet is completely out of the woods regarding mixed confidence about its AI growth prospects. Compare these stumbles to Microsoft’s (NASDAQ:MSFT) substantial AI progress.
It’s no wonder the market is hesitant to bid up GOOG right now. However, for investors not afraid to go against the grain, this “show me” attitude among the market could make it advantageous to enter a position today. At least, based upon the following factors.
Current Pessimism May Prove to Be an Overreaction
Alphabet may be playing catchup with the rollout of chatbots and other generative AI software products, but it’s not as if the company is completely behind the eight-ball. Along with negative AI-related news, there’s been some positive AI news as well.
Namely, recent news about a possible AI collaboration between the company and one of its top Mag-7 peers. If such a collaboration can withstand regulatory scrutiny, such a partnership could quickly turn Alphabet into an AI front-runner. In turn, this would likely boost bullish sentiment about GOOG stock.
Beyond the possibility of some game-changing AI-related news, it’s also important to note that the aforementioned AI progress made by Microsoft has yet to affect Alphabet’s cash-cow core business: Google Search. Despite Microsoft’s integration of gen AI enhancements to its Bing search platform, Bing’s market share has “barely budged,” as Bloomberg put it back in January.
Add to all of this the fact that Alphabet’s fiscal performance continues to benefit from both a rebounding digital ad market, as well as the positive impact of last year’s cost reduction efforts. Given how all these factors could drive another strong run for shares, current pessimism may prove to be an overreaction.
Feel Free to Buy/Hold, as Uncertainty Leaves Shares “Priced for Disaster”
Yes, Alphabet has yet to become what we would consider a top-shelf AI play. However, among big tech names, when it comes to GOOG, there’s still a lot to like.
Generative AI uncertainty has made investing in this stock frustrating in the near term, but it has left shares trading for what could be considered a “priced for disaster” valuation.
Trading for only 22 times forward earnings, this valuation is more than sustainable. This holds especially true given that analyst consensus still calls for GOOG to experience double-digit earnings growth over the next two years.
Beyond just the prospect of shares growing in tandem with earnings growth, any gen AI breakthrough would likely lead to multiple expansions as well.
With this potential upside rewarding, helping to counter what remains a hazy future, feel free to buy and hold GOOG stock.
GOOG stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
