Alphabet GOOGL is leveraging AI to attract new clients, win larger deals, and deepen product adoption among existing customers. PaliGemma 2, GOOGL’s latest version of the tunable vision-language model (VLM), built on the performant Gemma 2 models, is a step ahead in this regard.
Gemma is the result of the same research and technology GOOGL used to develop Gemini models. In May, Alphabet launched PaliGemma, a VLM inspired by PaLI-3. PaliGemma 2 models can see, understand, and interact with visual input.
PaliGemma 2 can read long captions and generate detailed, contextually relevant captions for images. Hence, it can be used to recognize chemical formula, music score, spatial reasoning, and generate chest X-ray.
Existing PaliGemma users will find it easier to upgrade to PaliGemma 2, which is designed as a drop-in replacement. PaliGemma 2 is available in a range of model sizes (3B, 10B, 28B parameters) and resolutions (224px, 448px, 896px) with immediate performance gains.
AI Improves Alphabet’s Search & Cloud Businesses
Alphabet is riding on strong demand for its AI and Gen AI services. Its Gemini models are currently used by more than 2 billion users monthly across products and platforms. Gemini comes in four sizes, forming a versatile model family that runs efficiently on everything, from data centers to devices.
GOOGL continues to invest in state-of-the-art infrastructure to support its AI efforts globally. It is leveraging AI to improve the coding process, and more than 25% of all new code at Google is currently generated by AI.
The integration of GenAI technology into the search engine is benefiting Google Search. Large Language Models, coupled with multi-search and visual exploration features, are continuously improving the search results.
New AI-powered enhancements, such as AI Overview, Circle to Search and advanced features in Lens, are improving user experience. AI Overview currently reaches more than 1 billion users monthly, and engagement levels are quite strong. The integration of ads within AI Overviews bodes well for Alphabet’s monetization efforts.
Circle to Search is now available on more than 150 million Android devices, with people using it to shop, translate text and learn more about the world around them. Lens has become the fastest-growing query type due to its ability to help in product discovery and shopping.Â
Alphabet is leveraging AI and Generative AI (Gen AI) to boost Pixel’s features. The devices run on Google Tensor G4 chips, which help bring the Gemini Nano with Multimodality, Google’s latest on-device AI model. Gemini assistant understands text, as well as images, audio and speech due to the multimodal models.
Google Tensor G4 is custom-built for Gemini and helps users browse the web 20% faster and launch apps 17% faster on average.
AI and Gen AI power Pixel’s photography and video capabilities, including Add Me and Plus Magic Editor features. Pixel Weather app uses AI to offer more accurate forecasts. Users can create lists in Google Keep with the help of Gemini. Call Assist uses AI to not only screen spam calls but also to wait on hold for users. This feature is now available on Pixel Watch 3.
AI Helping GOOGL Maintain Competitive Prowess
In the highly competitive cloud infrastructure market, Google Cloud has solidified its position as the third-largest provider compared with Amazon’s AMZN cloud arm, Amazon Web Services and Microsoft MSFT Azure.
Alphabet is seeing strong demand due to an innovative AI infrastructure. GOOGL offers customers a range of AI accelerator options, including multiple classes of NVIDIA NVDA GPUs and custom-built TPUs.
Enterprise AI platform Vertex is gaining rapid adoption. Enterprises are combining Alphabet’s AI platform with data platform BigQuery to make accurate real-time decisions. BigQuery machine learning operation saw 80% growth over the past six months, driven by this strong demand.
However, stiff competition in the cloud and AI domains has negatively affected Alphabet’s stock price. GOOGL shares have returned 26.1% in the past 12 months, underperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have returned 37.7% and 26.8%, respectively.
GOOGL’s Past 12-Month Performance
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Image Source: Zacks Investment Research
Earnings Estimate Revisions Trend Higher for GOOGL
The Zacks Consensus Estimate for 2024 revenues is pegged at $294.74 billion, indicating 14.91% growth over 2023’s reported figure.Â
The consensus mark for 2024 earnings is pegged at $8.02 per share, up a couple of cents over the past 30 days, suggesting 38.28% growth from the figure reported in 2023.
Alphabet’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 11.84%.
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Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
GOOGL Stock is Overvalued
The Value Score of C suggests a stretched valuation for Alphabet at this moment.
Alphabet stock is trading at a premium with a forward 12-month Price/Sales of 6.44X compared with the industry’s 6.18X.
Price/Sales Ratio (F12M)
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Image Source: Zacks Investment Research
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However, GOOGL shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
GOOGL Shares Trade Above 50-Day & 200-Day SMA
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Image Source: Zacks Investment Research
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How Should Investors Approach GOOGL Stock?
Alphabet’s growing GenAI capabilities present a potential catalyst for the future amid stiff competition in the cloud space and increasing regulatory headwinds. GOOGL’s dominant position in the search engine market and strong position in the cloud are long-term drivers.
Alphabet is facing increasing regulatory headwinds and global scrutiny over its search dominance. Google’s alleged wrong practices constitute the utilization of Android to promote its own search engine unfairly. It is facing several lawsuits regarding data privacy, competition practices, AI usage, and copyright issues in several countries across the globe.
Alphabet continues to face rigorous scrutiny and any scenario involving a forced breakup by the U.S. government can have serious repercussions over its prospects. Moreover, stiff competition in the cloud space from Microsoft and Amazon is a headwind.Â
Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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