Alphabet Inc. Seen as Undervalued AI Giant Despite S&P 500 Leadership
Alphabet Inc., the parent company of Google, is being hailed as an undervalued AI giant. Despite being part of the 'Magnificent Seven' tech stocks that have propelled the S&P 500, it's seen as a bargain by investors, trading at just 24 times forward earnings. The company is set to increase its capital spending to $85 billion to fuel AI growth, a move that has historically yielded strong returns.
Alphabet's cloud unit is a key driver of its AI prowess. It offers customers access to a wide array of AI products and services, including Vertex AI for AI development and Gemini, a large language model that optimizes search results and supports advertising growth. The company uses AI to enhance its own operations and provides AI solutions to customers, generating billions in revenue through Google Platform and Google Cloud.
The demand for AI capacity is high, and Alphabet, as a leading cloud company, is well-positioned to meet this demand. With a solid customer base and substantial resources, it can build out infrastructure to support this growth. While it may not become a 10-bagger in the next five years, analysts agree that it's well-positioned to advance significantly as the AI boom continues.
Alphabet's ongoing development of Gemini is expected to further streamline its operations and support earnings growth. Despite recent growth, AI companies, including high-quality ones like Alphabet, can still offer investors buying opportunities. With a forward P/E ratio of 24, Alphabet is seen as a cheap stock with room for share price growth.
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