AI Innovation Warrants a Higher Multiple – TipRanks Financial Blog

Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) stock has performed well but still hasn’t been the most magnificent of the so-called Magnificent Seven group over the past year. The artificial intelligence (AI) rally is still going strong into 2024, and though Alphabet has big AI innovation projects (perhaps better than some rivals), the stock still hasn’t been able to drive a great deal of multiple expansion in recent years.

At writing, shares of GOOGL go for a very reasonable 22.2 times forward price-to-earnings (P/E), making it not only the “cheapest” Magnificent Seven stock but also a name that’s not all too much pricier than where the stock normally trades. The modest valuation alone leaves me incredibly bullish on the stock as the company looks to put its foot on the gas with Gemini (formerly Bard).

With Google recently pulling the curtain on its Gemini Ultra paid tier, the firm is essentially following in the footsteps of ChatGPT-owner OpenAI. Heck, Gemini Ultra may appear to outperform ChatGPT-4 in certain measures. However, you can’t really dub either one as “better” for all uses, at least not yet.

Gemini is every bit as intriguing as it is capable. But is there something fundamentally wrong with the Alphabet story as it stays on the cutting edge of AI innovation, just like many of its peers?

There is one piece of hair on the GOOGL stock narrative. That lies in the high degree of uncertainty as to the fate of Google Search once AI potentially takes its place as the go-to “internet guru.” For now, it’s not yet known how many people will leave Google for greener pastures as new chatbots aim to grab a slice of share away from the previously untouchable search market.

AI Is Both a Potential Disruptor and a Growth Lever for Google

For now, it’s probably a known fact that Google is leaning heavily on the strength of its search engine when it comes to sales and earnings. Given Google’s heavy reliance on Search, I guess you could say a bear-case scenario exists that would cause some to view the stock as a bit of a value trap.

Still, I think the GOOGL avoiders and skeptics are wrong to view the name as a value trap just because it’s the heavyweight champ in Search with everything to lose as consumer-facing AI gets smarter and faster by the day.

If anything, generative AI products on Google could make the whole experience of Googling that much better. If there’s a company that can disrupt Google…