Analyst Explains Why Alphabet (GOOGL) is ‘Incredibly Inexpensive’ AI Stock

We recently published 10 Stock News You Can’t Miss As Investors Watch AI Trade Momentum. Alphabet Inc (NASDAQ:GOOGL) is one of the stock news you can’t miss.

‪OptionsPlay‬’s Tony Zhang made a bullish case for Alphabet in detail during a latest interview with Schwab Network. The analyst said the market’s concerns over Google’s search business due to the impact of AI turned out not to be true. He believes the company will benefit from AI and it has the capacity to spend on the technology and monetize it.

“You know there was a lot of concern over the last few quarters that generative AI with chatgbt grock and claude that that was going to make Google’s search product irrelevant. I think Google has shown us that that is not the case. If anything, Google’s integration of Gemini into the search engine has been a very successful implementation. On top of that, Google has been very strong and far more aggressive than they’ve been historically on integrating AI directly into the fairly deep product mix of products that they offer across both personal and their business lines. I think that’s really kind of one of the more successful opportunities to actually monetize AI. As all of these tech companies are spending tens of billions of dollars a year in capex to try to dominate in this AI space, there’s a lot of questions from investors as to whether or not that’s going to translate into enough revenue to justify this spend. There’s definitely a lot of concern these days around whether or not AI is quote quote unquote a bubble. But I think with firms like Alphabet, the risk of that is relatively lower because they generate over $95 billion a quarter in revenue. So an $85 billion capital expenditure in fiscal year 25 is something that they are capable of spending. More importantly, Google and Alphabet, similar to Meta, which is another one of my favorite plays within the AI space, has a true capability of monetizing AI across their fairly deep product mix. A lot of people use tools like Gmail and their business suite, their G Suite. This is really where I think they are able to use AI and monetize it. So, the fact that Alphabet trades at only 23 times forward earnings is incredibly inexpensive in my opinion for the long-term upside of AI.”

Alphabet is in a strong position to develop an AI ecosystem around search and Cloud. Businesses around the world are migrating to Google Cloud. Alphabet’s cloud margin rose to 20.7% in the second quarter from 11% last year. Google Cloud chief said earlier this year that the business has a backlog of $106 billion, and it’s “growing faster than our revenue.”

According to data from SimilarWeb, ChatGPT’s market share in AI chatbot traffic is shrinking despite being a leader. Gemini, on the other hand, is growing fast and has quadrupled its market share in the last six months.

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Disclosure: None. This article is originally published at Insider Monkey.