Google Inc. (GOOG) may be a household name, but its stock is also one of the most recognized names in the financial world, especially among US stocks. In an era where the company continues to exhibit resilience in revenue and earnings growth, investors find themselves at a crossroads.
Despite robust performance, the ascent of generative AI casts a shadow over the long-term profitability of Google’s search business. As Microsoft (MSFT) gains ground in the cloud division, a close association with OpenAI raises eyebrows about potential market share shifts.
This article delves into the nuances of investing in Google while shedding light on overlooked strengths in the cloud division, dismissing concerns about an antitrust trial’s impact, and highlighting the undervalued potential.
Join us as we unveil insights and strategies, and discover investing in Google can be a compelling investment opportunity if executed well.
The Best Pick Among the Magnificent Seven
In a market dominated by the “magnificent seven” tech stocks, Google stands out as an underappreciated gem. While the Big Tech hype has inflated stock prices across the board, Google maintains a unique position with a powerful growth trajectory and a surprisingly modest valuation.
Unlike its peers like Apple, Tesla, and Amazon, Google trades at a fraction of their sky-high multiples. With a 25+ P/E ratio and a $6.67 EPS estimate for 2024, Google presents a compelling case for investors seeking value.
The company’s consistent 10-year streak of increasing operating income reflects its resilience and strategic investments in AI, despite initial fears of obsolescence.
In contrast to the drama surrounding other tech giants, Google’s management keeps a low profile, focusing on business fundamentals.
The stock, currently offering a discount after a post-Q3 earnings dip, holds a favorable outlook. Google’s advertising dominance, especially in targeted ads, positions it for continued success in a shifting market.
While economic uncertainties loom, Google’s network effects and robust moat make it a standout choice.
Investors looking beyond the hype can find solace in Google’s steady performance, making it the smart play in the volatile “magnificent seven” landscape. Investing in Google has all the markings of a winning approach.
Business Model and Profitability
The first thing to know before investing in Google is the company’s business model and profitability, which form the cornerstone of its financial prowess.
As of the nine months ending in 2023, a staggering 78% of Google’s total revenues, equivalent to $172 billion, stem from its advertising business line. This robust segment comprises Google Search, Google Network, and YouTube, showcasing the company’s unparalleled dominance in the online advertising space.
Despite a modest 4% YoY growth in advertising revenues, the sheer magnitude of the figures, coupled with the rapid ascent of Google Cloud, contributing $23.8 billion, underscores the resilience of Google’s revenue streams.
While Wall Street may have expressed reservations about these earnings calendar updates, the reported 26% YoY increase signals a promising trajectory in this evolving sector.
However, it’s crucial to recognize that Google is entering a mature phase, marked by strategic cost optimizations and a reduction in its workforce. The company’s commitment to fortifying its position is evident in innovations like Gemini, a Large Language Model with potential beyond its predecessors.
Navigating Google’s financial landscape requires acknowledging its 90% ownership of the search engine industry, providing unparalleled access to data, and ensuring sustained profitability.
As Google adopts a more mature stance, anticipating a shift in growth rates, investors should be attuned to the evolving dynamics and the company’s commitment to improving operating margins.
In light of these factors, understanding Google’s business model and profitability is fundamental for informed investment decisions.
AI a Gamechanger
In the wake of the booming artificial intelligence revolution, Google emerges as a prime focus for investors drawn to the cutting edge of technological innovation. The appeal lies in Google’s strategic positioning in the AI landscape, with a recent news being the unveiling of Gemini, a formidable large language model (LLM).
Earlier this month, Google shares experienced a significant uptick, propelled by the transformative potential of Gemini.
This advanced AI model, available in Ultra, Pro, and Nano versions, is the driving force behind Google’s generative AI chatbot, Bard, positioning the company as a formidable contender against Microsoft-backed OpenAI’s ChatGPT.
Gemini’s comprehensive capabilities, spanning videos, images, text, and voice recognition, underscore Google’s commitment to spearheading advancements in AI. Alphabet CEO Sundar Pichai’s endorsement of Gemini Ultra for surpassing benchmarks adds weight to Google’s strategic move in the AI revolution.
For those keen on investing in Google, the delayed market response until JPM analyst Doug Anmuth’s insights on December 7 marks a pivotal moment.
Gemini’s adaptability across diverse use cases and hardware capabilities signifies Google’s proactive stance in navigating the evolving AI landscape.
As interest in Google intensifies due to its AI positioning, the stock surge on December 7 signifies a market reassessment, challenging the perceived AI dominance of Microsoft. Yet, prudent consideration is advised, given Google Cloud’s competition challenges and the dynamic nature of the AI market.
In essence, for investors seeking to ride the AI wave, Google’s strategic positioning and the advent of Gemini present an enticing opportunity in the ever-evolving landscape of artificial intelligence.
