We recently published a list of Top 10 Trending AI Stocks to Watch. Since Alphabet Inc Class C (NASDAQ:GOOG) ranks 3rd on the list, it deserves a deeper look.
Wall Street continues to gain momentum amid the latest earnings season and analysts are wondering whether we are still up for soft landing. Mohamed El-Erian, Allianz chief economic advisor, talked about the possibility of a soft landing vs no landing during a program on CNBC. When asked what would it take for the market to have a no-landing scenario, the analyst said:
“I think we need the productivity enhancers from A.I., from life sciences to come earlier, we need to continue to have positive shocks to our labor force. And if we get those two things, you can get the bigger but not hotter economy which actually would be perfect for almost everything you can think of, from households to companies to financial markets.”
The analyst does not rule out the possibility of a recession, however.
“My probability of a soft landing is 55%, and a recession is 30%. A soft landing is the most likely scenario, but it’s not dominant. Why isn’t it dominant? Because we have weakness in the household sector, particularly on the lower-income side, and the Fed has been unpredictable. Just think, Morgan—at the end of July, the Fed didn’t cut rates because everything seemed fine. By the next meeting in mid-September, it cut 50 basis points. And now it’s talking about cautious cuts. So, the Fed needs to be careful.”
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Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
In April 2023, Malcolm Ethridge, CIC Wealth executive vice president, on CNBC talked about the threats to Alphabet Inc (NASDAQ:GOOG) search business and the defensive posture of Sundar Pichai when it comes to AI.
“I feel like Google (Alphabet) will be continuously distracted and continuously trying to catch up in this AI arms race. If Google were to lean too far into the generative AI search trend, it would cannibalize too much of their business, as search is their only real revenue source. Even the products they have developed are built around getting users to the search bar quicker than on their competitors’ devices.
That is worrisome because if they were to make a real pivot toward incorporating a chat box feature with a singular answer to your search query, it would be the equivalent of Facebook going fully mobile back in 2014 when many were criticizing Mark Zuckerberg, saying he was crazy. I don’t think Google and Alphabet have the time to pull that off and be able to say, “We told you so, and we told you we had something in the works.”
So far the analyst’s concerns have proved wrong. Why?
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market. According to StatCounter report, Bing search engine’s market share only increased from 3.03% in August 2023 to 3.91% in August 2024. This shows MSFT has not been able to make any notable dent in Google’s market share.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
Oakmark Select Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) was the top detractor during the quarter. The U.S.-based communication services company’s stock price fell after a U.S. District Court ruled that Google violated Section 2 of the Sherman Act by maintaining a monopoly in general search engine services via exclusive distribution agreements. We think this case is unlikely to hurt Alphabet’s valuation over the long term as regulations previously en[1]acted in the European Union to address similar issues did not materially erode the company’s market share. We continue to believe that Alphabet is an attractive investment.”
Overall, Alphabet Inc Class C (NASDAQ:GOOG) ranks 3rd on Insider Monkey’s list titled Top 10 Trending AI Stocks to Watch. While we acknowledge the potential of Alphabet Inc Class C (NASDAQ:GOOG), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.