Investors are bracing for the Google I/O event to look for clues on the company’s strategies to tackle AI-related threats to its search business.
OptionsPlay’s Tony Zhang said in a recent program on Schwab Network that Alphabet remains undervalued. Asked about the threats the company is facing due to AI, Zhang said Alphabet can “catch up” to ChatGPT and pointed out its YouTube business strengths.
“Search is definitely something that investors should be concerned about long term. But YouTube has been a pretty strong business in conjunction with that. But as you said, you know, the AI ambitions that Google has—I think they’ve done a really good job recently catching up to ChatGPT with regards to the integration of their AI models into the G Suite and their entire product range. You know, we’re starting to see just the very early days of what Google can do with regards to AI, and I think this is really where, at some point, this will be far more ubiquitous within your Google suite of products—is the introduction of Google Gemini into that. And I think that’s really where the long-term ambitions for Alphabet stands. And, you know, when it’s trading at about 17 times forward earnings, this is by far one of the cheapest ways to get exposure to AI for the future. You know, especially when the industry is trading at around 20 times forward earnings, you’re trading at a pretty heavy discount here. Net margins of 28% is well north of the industry average.”
Alphabet Inc (NASDAQ:GOOG) posted strong quarterly results, but the market remains reluctant about the stock amid threats to its search business due to the onslaught of AI tools like ChatGPT. However, Alphabet Inc (NASDAQ:GOOG) bulls believe these concerns are overstated.
Google has an edge over competitors because it’s easier for the billions of users of its search engine to switch to Gemini instead of opting for a completely new model. Google has over 1.5 billion monthly users interacting with its AI-powered Search overviews. OpenAI has less than 5% of its users paying, and its business model is still developing. Google’s first-quarter results showed continued strength in its cloud unit, with revenue up 28% year over year and solid operating income growth. This supports Google’s broader AI strategy and underscores the scale advantages of its cloud business.
Alphabet Inc (NASDAQ:GOOG) has also affirmed its $75 billion capital expenditure plan for 2025, which threw water on skeptics’ claims about a slowdown in demand trends.
Middle Coast Investing stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q1 2025 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) – We bought Alphabet (i.e. Google) in a few accounts. I’ve owned it before, but not for very long. I usually don’t focus on buying the biggest tech companies, even as we have the one portfolio with the large AMZN / AAPL positions.
One reason to do this is to give the portfolios with Alphabet exposure to large cap technology, a huge part of the market. But also, of the so-called Magnificent Seven or any other trend of huge tech stocks you want to name, Alphabet is the most attractive. At $170/share, where we bought it, it traded at 19x 2025 earnings estimates and 21x 2024 earnings results before crediting its balance sheet for its huge cash position. That is less than the S&P 500.
Alphabet is supposedly threatened by the advent of ChatGPT and generational AI. It seems as likely to me that Alphabet wins or at least ties Microsoft and OpenAI in these battles as anything else. It also seems as likely to me that the generative AI trend slows down, and the incumbent, Google search, becomes the business winner…” (Click here to read the full text)
While we acknowledge the potential of GOOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than GOOG and that has 100x upside potential, check out our report about the cheapest AI stock.
