Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) stock remains a top choice for long-term growth investors, for a number of reasons.
The preeminent player in online search, Alphabet’s core Google business is core to its investment thesis. The company’s cash flow growth profile and durable profitability make it one of the safest Big Tech stocks to own for the long-term.
The company’s recent shifts toward AI and machine learning are worth noting. Alphabet, with projects like TensorFlow, continues to integrate them into its core offerings, improving the user experience and increasing engagement.
Following a recent Bloomberg report by analyst Mark Gurman, speculation arose regarding Apple’s (NASDAQ:AAPL) recent negotiations with Alphabet regarding integrating Gemini into its devices.
Whether this integration materializes remains uncertain, but underscores Gemini’s prominence in the AI landscape.
The company’s machine learning extends to its Google Cloud division, offering AI and ML services to developers and enterprises. Its data warehouse, BigQuery, integrates advanced ML capabilities, enabling the analysis of 110 terabytes of data per second.
This contributed to the division’s revenue growth from $13 billion in 2020 to $33 billion in 2023, solidifying Alphabet’s position as a top machine learning stock.
Let’s dive more into why long-term investors remain bullish on GOOG stock.
Analysts Are Still Bullish on GOOG Stock
Wedbush included Google in its Best Ideas List, raising the firm’s target price on GOOG stock from $160 to $175 with an “outperform” rating. According to Wedbush, Alphabet could benefit from generative AI, dismissing concerns about risks to Google Search.
Wedbush remains optimistic about Alphabet’s prospects despite its shares trailing behind competitors like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in the cloud arena.
Analysts continue to find encouragement in Alphabet’s recent statements on generative AI and Google Search and reports of negotiations with Apple to integrate Gemini into future iPhone software updates.
Gene Munster from Deepwater Asset Management expressed optimism about a potential deal between Google and Apple, stating that Google investors have eagerly anticipated this development for the past six months.
Amid concerns about Google’s leadership and the perceived risk of AI to its search engine, CEO Sundar Pichai faced criticism for lacking vision, with reports of employee discontent and talent departing for competitors like Apple.
Google’s challenges with its Gemini AI chatbot underscored the potential impact of AI on its search engine.
Partnership with Apple
With its dominant search engine, Alphabet has a symbiotic relationship with Apple. Despite paying billions to remain the default search option on iPhones, AI advancements could alter this dynamic.
Talks of licensing Alphabet’s AI models to Apple signal a potential shift, granting Apple leverage in their partnership.
Apple’s global dominance, with over 2.2 billion devices running its OS, solidifies its value in its search deal with Alphabet. iPhones contribute significantly to Google’s traffic and ad revenue, yielding up to $20 billion annually for Apple.
However, the emergence of intelligent chatbots poses a risk. Apple needs to improve its service and may require substantial investment to catch up, estimating up to $5 billion in expenses for AI initiatives.
Apple and Alphabet face a common challenge. Apple needs an AI service despite its extensive user base, while Alphabet’s Google Search, a significant revenue source, faces potential audience loss.
Meanwhile, Alphabet’s AI project Gemini faced initial setbacks. Chatbot excitement boosted Microsoft’s stock, prompting discussions between Apple and OpenAI.
However, negotiations with Alphabet hold promise due to Google’s vulnerability. Antitrust concerns loom large, given ongoing scrutiny of their partnership’s fairness, potentially complicating any potential deal.
Not Backing Down in the AI Race
Analysts noted a shift in sentiment toward generative AI, citing management’s positive remarks on Google Search and media reports of negotiations with Apple to integrate Gemini into iPhone software updates.
Experts also foresee potential catalysts if management addresses investor concerns promptly. They suggest more straightforward communication regarding the business model implications of search generative experience and feedback from early tests.
Additionally, they highlight the potential for more aggressive cost re-engineering and continued enterprise momentum in generative AI use cases.
Although part of the Magnificent Seven, Alphabet’s stock has seen recent stagnation, with many taking a cautious approach to this company.
I think that Alphabet’s stability via its core business, and its growth upside via its AI and machine learning integrations, makes this stock a compelling option at 26-times earnings right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
