Google's AI Milestone: Bard Surpasses ChatGPT in User Preference

This Artificial Intelligence Giant Just Reached a Huge Milestone. Time to Buy? | The Motley Fool

Customers have flocked to this company for its AI products and services. Investors have piled into artificial intelligence (AI) stocks in recent times on optimism about the technology's game-changing potential. The idea is that AI could help companies become more efficient, generate cost savings, and even make great discoveries. And this may supercharge their earnings down the road. But some companies already are seeing the benefits of AI, and these are the players offering products and services to those developing AI platforms. One of these tech giants just reached a huge milestone, thanks, in part, to its investment in AI and offering these tools to its customers. I'm talking about Alphabet (GOOG -2.99%) (GOOGL -3.10%), most known for its Google search platform and Google cloud services. Is it time to buy this AI stock? First, a little background on Alphabet and its businesses. The company makes the lion's share of its revenue thanks to advertising on Google search, which holds more than 91% of the worldwide search market. Customers buy advertising that appears on Google pages to reach their target audiences. In the most recent quarter, Google's advertising revenue totaled $64.6 billion of the company's total revenue of $84.7 billion. Though advertising is the company's biggest moneymaker, Alphabet also is gaining significant ground in another area -- cloud computing services. This includes everything from cloud storage to platforms for companies developing AI programs. And this brings me to the subject of Alphabet's big milestone. In Alphabet's earnings report for the first time ever, Google cloud reached more than $10 billion in quarterly revenue and more than $1 billion in quarterly operating profit. Alphabet's cloud business still is far from catching up to market-leader Amazon's Amazon Web Services (AWS). This bigger rival reported $25 billion in revenue and $9.4 billion in operating profit in the most recent quarter. But Google cloud is growing faster, with 28% growth in revenue and 197% growth in operating profit in the quarter year over year. That's compared to 17% and 84% respective growth for AWS. Importantly, Alphabet's AI infrastructure and generative AI solutions segments have brought in billions of dollars in sales, signaling that the company's AI investments are starting to bear fruit. And more than 1.5 million developers are using Google's large language model Gemini. On top of this, most of Google cloud's 100 biggest customers are using generative AI solutions. It's not yet clear when Alphabet will fully monetize its AI investments -- this will be a long-term story rather than a short-term one, as with any new investment in a major technology. But it's positive to see the efforts beginning to drive revenue growth and even help the cloud business reach a key milestone. Though cloud is a much smaller part of the revenue picture than Google advertising, it's a significant growth driver -- and this could continue as the AI opportunity expands. Is it time to buy this AI stock? A look at Alphabet's valuation shows it's trading for about 23x forward earnings estimates, up from this year's low of less than 20 just a few months ago. But the stock still remains cheap, considering the strength of the Google search business, as well as the recent progress made by Google cloud. Alphabet's focus on AI is a major positive and should drive growth in the years to come. Though it will take time for the company to fully monetize its investments, its return on invested capital has generally increased over the past five years. All of this means right now is a great time to invest in Alphabet shares. You'll be picking them up at a very reasonable price -- and buying them during an early chapter of the AI growth story. By holding your shares over time, your portfolio could benefit as both AI development and Google cloud continue to become a more important part of the Alphabet revenue picture.

Why Google Parent Alphabet Is the Best Artificial Intelligence (AI) Stock in the "Magnificent Seven" | The Motley Fool

Many investors are missing the forest for the trees with Alphabet. Here's why it's arguably the best artificial intelligence (AI) stock in the "Magnificent Seven." Alphabet continues to trounce the biggest and smallest Magnificent Seven stocks -- Apple (AAPL -0.48%) and Tesla -- in revenue growth. Its earnings are growing much faster than theirs, too. Despite the YouTube advertising disappointment, Alphabet's Q2 revenue jumped 14% year over year, with earnings soaring nearly 29%. It's important to note that YouTube ad revenue increased 13%. Although that wasn't as much as analysts expected, the growth wasn't too shabby. That's especially the case considering there was no longer a year-over-year boost from the YouTube TV price increase that took effect in 2023 Q2. Apple hasn't reported its Q2 results yet. However, the company's revenue declined 4% year over year in its quarter ending March 30, 2024, with earnings slipping 2% lower. Perhaps Apple's new AI capabilities will reignite growth with the upcoming launch of its new iPhone model, but the company has a long way to go before it catches up with Alphabet. Tesla's revenue increased by a paltry 2% year over year in Q2, and net income plunged 45%. It's fair to say this Magnificent Seven stock isn't looking all that magnificent right now. Like Apple, Microsoft (MSFT -2.45%) hasn't announced its results for the most recent quarter. However, the tech-giant's growth in the quarter ending March 31, 2024 was in the same ballpark as Alphabet's in Q2. The big advantage Alphabet has over Microsoft, though, is that it isn't outsourcing AI development. Microsoft's success stems in large part from its partnership with OpenAI. Without OpenAI's GPT-4, I suspect Microsoft would be floundering. Meanwhile, Alphabet CEO Sundar Pichai proclaimed in the company's Q2 earnings call this week, "[W]e are in a strong position to control our destiny as the technology [AI] evolves." He added, "Importantly, we are innovating at every layer of the AI stack, from chips to agents and beyond, a huge strength." I agree with Pichai's assessment. Alphabet and Amazon (AMZN -0.54%) share a lot in common. Both companies are effectively harnessing AI to improve profitability and operate fast-growing cloud units that are benefiting from the generative AI boom. Both have developed their own AI chips but still depend heavily on Nvidia's (NVDA -1.72%) graphics processing units (GPUs). Amazon delivered stronger earnings growth in its last reported quarter than Alphabet did in Q2, although its revenue growth was slightly lower than Alphabet's. Nvidia blew past all other Magnificent Seven members on both the top and bottom lines. However, Alphabet beats Amazon and NVidia on one important front: valuation. The Google parent's shares trade at a price-to-earnings-to-growth (PEG) ratio of 1.34. Amazon's and Nvidia's PEG ratios are 1.98 and 1.39, respectively. That leaves Meta Platforms (META -1.70%). The social media leader's revenue and earnings soared much more in its last reported quarter than Alphabet's did in Q2. Meta isn't outsourcing its AI development like Microsoft, and its PEG of 1.16 is even lower than Alphabet's. All of this might seem to make Meta the best AI stock in the Magnificent Seven, but I think Alphabet's growth wild card is more compelling than Meta's. And that's enough to put Alphabet on top for me. What are these companies' growth wild cards? For Alphabet, it's the company's Waymo self-driving car technology unit and "other bets." For Meta, it's the metaverse. The metaverse could be as big an opportunity as Meta CEO Mark Zuckerberg predicts. I feel much more confident, though, in the opportunity the robotaxi market presents for Waymo. Do I think there are solid arguments that some of the other Magnificent Seven members could be the best AI stock in the group? Absolutely. Although I think Alphabet stands at the top now, my opinion could easily be swayed by new developments in the fast-moving AI space. The reality is that all seven stocks could be huge winners because of AI tailwinds over the next decade and beyond. There's no need for investors to try to choose which is the best when you can buy several or all of them.