Amid the emergence of generative artificial intelligence, there's debate over whether Google parent Alphabet (GOOGL) stands out as a tech industry leader or lags startup OpenAI. What's clear is that generative AI presents new opportunities as well as risk for Google stock.
↑X From Search To Advertising, Will Google's Big AI Bet Pay Off? See All Videos
As of June 29, Google stock had advanced 30% in 2024. Further, Google stock ranks No. 20 in the IBD 50 roster of growth companies.
A recent Goldman Sachs report that summed up the 2024 performance of GOOGL stock noted that investor sentiment on artificial intelligence has improved, albeit with some hiccups.
"Alphabet has recovered from early March lows as negative perception about long-term search positioning and operating results on margins/efficiencies have become less pronounced due to strong Q1 operating results," said the Goldman Sachs report. "Company events have demonstrated commitment to innovation while also delivering on operating efficiencies. Rising capital investments remains a topic for forward estimate revisions but cloud segment and wide-ranging platform/product innovation should continue to demonstrate potential for sustained industry leadership."
Google reported first-quarter earnings and revenue that handily beat consensus estimates while the internet giant announced its first-ever dividend and a new $70 billion stock buyback.
Despite fast-rising capital spending amid AI investments, Google told analysts it expects operating margins to expand in 2024 as it moderates expense growth and targets efficiency gains across the business.
While capital spending is trending up, Bank of America forecasts that Google's free cash flow will boom to $118 billion in 2026, up from $103 billion in 2025, $81 billion in 2024 and $69 billion in 2023. As a result, Google could boost shareholder returns.
Google Stock: Apple AI Deal Still On Table?
Following 10 months for a search for a new chief financial officer, Google announced that Anat Ashkenazi will become CFO effective July 31. Ashkenazi has held diverse financial, strategy, and operations roles at pharmaceutical giant Eli Lilly (LLY) for over 23 years, including serving as CFO for the past 3 years. Google awarded her a one-time signing bonus of $9.9 billion.
At its Worldwide Developers Conference, Apple said it will integrate OpenAI's ChatGPT into the Siri voice assistant and iOS 18. Apple left the door open to adding "support for other AI models in the future." Some analysts viewed the statement as a plus for a possible Google partnership.
One big question for GOOGL stock: how will integrating chatbot AI technology into internet search queries impact advertising revenue? Google plans to embed its Gemini AI model tools directly into its search engine.
At Google Marketing Live 2024, the company introduced new products and features for advertisers that include ad placement across the new "AI Overviews," formerly Search Generative Experience, format.
The AI Overviews format showed some inaccurate results early in the roll out. In March,Google became ensnared in a controversy over its Gemini-powered gen AI chatbot.
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Google's 2022 acquisition of cybersecurity firm Mandiant for $5.4 billion seems to be paying dividends. Also, Google stock is among many AI stocks to watch.
DOJ Anti-Trust Case Ruling Looms
Meanwhile, a ruling in the Justice Department's nonjury antitrust trial vs. Google is pending. Final arguments in the case were heard May 3.
A ruling could come in weeks.
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 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. Google will likely appeal any court decision.
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.
With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver. But Google suffered a big legal defeat by Fortnite maker Epic Games. As a result, Alphabet has opened up its wireless App Store.
'Other Bets' Under New Scrutiny
Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015.
Further, Alphabet's money-losing "Other Bets" and Moonshots are company assets that investors should monitor for new developments, according to an IBD report.
Google's Other Bets piled up $37.3 billion in operating losses since 2014 on revenue of just $7.3 billion. For Google stock, the good news is that financial results improved in 2023. Other Bets reported an operating loss of $4.1 billion last year on revenue of $1.5 billion.
And, Alphabet is letting Other Bets like Google Fiber seek outside investors in a move that could lead to spin-offs. But determining the current valuations of Google's self-driving-car project Waymo and Verily Life Sciences are big challenges.
BofA is upbeat on Waymo's outlook.
"With the recent breakthroughs in artificial intelligence and compute, the autonomous vehicle industry has a better opportunity to break though previous bottlene
Google Stock: YouTube Growing Fast
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.
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.
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. YouTube Shorts now generates roughly 70 billion daily views.
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.
Under 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.
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.
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 2023, 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.
GOOGL Stock Fundamentals
In Q1, Google earnings came in at $1.89 per share, up 61% from a year earlier.
A gain of $2.2 billion from equities on Google's balance sheet boosted Q1 earnings by about 15 cents. The tech giant reports earnings under generally accepted accounting principles, also known as GAAP.
Further, gross revenue rose 15% to $80.54 billion. Analysts had predicted Google earnings of $1.51 per share on revenue of $78.7 billion.
Additionally, advertising revenue rose 13% to $61.66 billion, topping estimates of $60.44 billion.
Meanwhile, YouTube ad revenue rose 21% to $8.1 billion, beating estimates of $7.7 billion.
Google said cloud-computing revenue rose 28% to $9.574 billion, above estimates of $9.4 billion.
In Q1, Google's capital spending jumped 91% to $12 billion, up from $11 billion in the December quarter and $6.3 billion in the year-earlier period.
Google Stock: Cloud, Hardware, Security Acquisitions
Another question is the performance of Google's hardware business. It's battling Applein 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.
GOOGL Stock: Is It A Buy Or Sell Now?
Alphabet stock has turned in good and bad years recently. GOOGL stock jumped 65% in 2021. But in 2022, Google stock dropped 39%.
Despite mounting competition in AI and internet search, Google stock advanced 58% in 2023. That was better than the 43% jump in the Nasdaq composite. The S&P 500 rose 24%.
Also, Google's Relative Strength Rating currently stands at 93 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better. The relative strength line has tumbled.
GOOGL stock holds an Accumulation/Distribution Rating of B. That institutional ownership rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Further, shares hold an IBD Composite Rating of 99 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.
On MarketSurge, Google stock holds an entry point of 153.78. As of June 29, Google stock is extended and trades well above a 5% buy zone.
Follow Reinhardt Krause on Twitter@reinhardtk_techfor updates on artificial intelligence, cybersecurity and 5G wireless.
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