Alphabet, the parent company of Google, is currently in a position of increased competition within the artificial intelligence sector, as noted by Melius Research. While the company possesses a strong competitive advantage in search, this advantage is at risk of being disrupted.
Disruption Looms in Search Domain
Although Google’s search market share remains steady, competitors such as ChatGPT and Perplexity are showcasing what the future of AI search could hold. Google’s Search Generative Experience (SGE) is being utilized with partners and has been rebranded as Gemini, with a $20 per month version available. However, analysts are eager to see more evidence that SGE will prevail as the preferred method of search in an AI-dominated world.
Market Analysis and Valuation
Alphabet’s valuation, according to Citi analyst Ronald Josey, presents a remarkable opportunity for investors. Josey views Alphabet’s forward earnings valuation as a discount compared to its ‘Mag 7’ peers, attributing this to multiple growth opportunities for both consumers and enterprises within the business sphere.
Comparison with Industry Peers
Alphabet currently trades at 20.7 times the per-share earnings expected for the upcoming year, exhibiting a decline from its five-year average of 23.4 times. In comparison, Microsoft is trading at 32.2 times forward earnings, Amazon at 40.3 times, and Meta Platforms at 23.7 times.
Stock Performance and Outlook
Despite a 1.6% decrease in share price on Monday, with shares trading at $141.49, Alphabet has witnessed a positive growth of 57% over the past year.
