Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) stock has been weighed down by the early rise of OpenAI, ChatGPT, and Bing AI. With Microsoft (NASDAQ:MSFT) launching Bing AI while upping its stake in OpenAI, Google no longer seems like the top way to play the rise of AI (artificial intelligence) anymore, as shares have once again fallen near $90 per share.
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However, despite Google’s lackluster performance and lagged start to the AI race, the stock still looks like one of the cheapest ways to play a coming AI boom. Therefore, I am bullish on GOOGL stock.
AI Could Change Software at a Fundamental Level
Microsoft’s CEO Satya Nadella believes AI will “fundamentally change every software category.” I think he’s right on the money, with Microsoft poised to roll out impressive generative AI offerings across a broad range of software within its suite.
Indeed, ChatGPT and Bing AI are off to a remarkable start, but I don’t think Google Workplace and search users will jump ship to Microsoft Office and Bing anytime soon. Even for those who make the jump, Bard AI’s launch will likely beckon long-time users back to its ecosystem, and I do think Bard will be just as capable as the likes of Bing or ChatGPT.
It’s hard to tell whether Bing or Bard will be more popular among users as the wave of AI innovation hits software. Regardless, I do think investors ditching Alphabet stock over Bard’s weak first impression could find themselves buying back into the name at higher prices down the road, likely after Bard has proven a worthy foe to Bing and ChatGPT.
At the end of the day, Alphabet is still an AI powerhouse. The public may not yet see the full extent of the firm’s AI capabilities. However, it’s premature to discount Google’s works behind the scenes and its unique competitive advantages that could help it gain the lead in the so-called “AI battle.”
Alphabet’s AI Rollout Could be Even More Impressive
Alphabet likely did not expect the explosive rise of ChatGPT over the last several months. The company has been busy working on the finishing touches on its own AI for years. Though it’s discouraging to see Alphabet witness that first leg of the generative AI boom from the sidelines, I do believe Alphabet can and will move from the backseat to the front seat as it moves forward with an AI rollout of its own.
It’s not just productivity software where AI can come in handy. Entertainment software may also benefit greatly from a ChatGPT-like bot tailored to a specific purpose.
Indeed, AI can enhance everything from a browser (think Google Chrome and Microsoft Edge) to operating systems and even video game consoles (imagine ChatGPT on Xbox).
By putting “AI everywhere,” firms can gain a lot without risking anything. As Microsoft tests the waters by embedding AI across its wide range of software, look for Alphabet to do the same.
Microsft and Google: Both Worth Owning for AI Exposure
Microsoft isn’t wasting time with its AI rollout, but neither is Google with its “Code Red” to catch up with ChatGPT and its long-time search rival Microsoft. Just because Microsoft is leading in AI and Google is lagging doesn’t mean Microsoft is the better bet. I think it makes a lot of sense to own shares of both companies, given the distinct advantages that could help them thrive in AI.
Microsoft has the early AI lead, a ChatGPT stake, and a brilliant mind in Satya Nadella. However, Google has a sea of data and sophisticated behind-the-scenes AI projects that could help it hold its own, if not surpass Microsoft, on the consumer-facing AI front over the coming years.
In essence, I view Microsoft as having the first-mover’s edge, while Google sports the data advantage. Over the coming years, expect both companies to be acquisitive as they look to add more AI tools and innovations to their arsenal. For now, though, I do think Google’s data advantage is the fuel that could keep the AI engine running strongest.
Is Alphabet Stock a Buy, According to Analysts?
Turning to Wall Street, GOOGL stock comes in as a Strong Buy. Out of 31 analyst ratings, there are 31 unanimous Buy recommendations.
The average Alphabet stock price target is $129.40, implying upside potential of 40.3%. Analyst price targets range from a low of $115.00 per share to a high of $160.00 per share.
The Bottom Line on GOOGL Stock
For now, it’s impossible to tell whether Microsoft or Google will “win” the AI wars. Ultimately, both companies can harness the power of AI to give their revenues and massive jolt. With that, I’d argue there’s no reason why both companies can’t deliver for investors, as AI changes software at a fundamental level.
At this juncture, I think GOOGL stock offers better value, with shares going for just 20.2 times trailing earnings, well below MSFT stock’s 27.6 times trailing earnings multiple. As Bard gets up to speed with Bing, I’d look for the valuation gap between the two stocks to narrow.
