Alphabet Inc adds $115 billion in value after defying AI doubters

With excitement around AI building, Alphabet had largely missed out on the stellar gains seen by many of its tech peers


Photo: Bloomberg

Listen to This Article

By Jeran Wittenstein
Alphabet Inc. is back in the game. The artificial intelligence game, that is.
Shares in the Google-owner had lagged behind other megacaps this year amid fears it was losing ground in the race to deploy AI products. Yet since it unveiled its latest AI tools at a developer’s conference last week, the stock has advanced 9%, adding $115 billion in market value and erasing its underperformance against peers like Apple Inc. and Microsoft Corp.
“Investors are questioning whether Alphabet is a winner or loser as AI changes the landscape,” said Jason Benowitz, senior portfolio manager at CI Roosevelt. “This puts them more solidly in the winner camp.”

With excitement around AI building, Alphabet had largely missed out on the stellar gains seen by many of its tech peers, particularly as the rapid growth of OpenAI’s ChatGPT is seen as a potential threat to the dominance of its search business. So last week’s announcement of a more conversational search engine and that the company is making its AI-powered chatbot more broadly available provided a timely boost.

ChartMorgan Stanley analyst Brian Nowak was among Wall Street analysts heartened by Google’s presentation after what he called “AI overhang” in the stock.

Also Read

Google Bard: What we know so far about generative AI chatbot in the works

OpenAI announces ChatGPT chatbot: What is it, how it works, and limitations

Alphabet shares dive after Google AI chatbot Bard flubs answer in ad

AI integration may soon fundamentally alter how we search on the internet

What is ChatGPT-4 and how to use it right now: Everything you need to know

UK doesn't work for other global regulators, says Antitrust head Cardell

Credit Suisse deal set to face historic parliamentary probe in its collapse

Big money rushes into carbon capture and storage. Can it deliver this time?

Singapore Airlines reports record annual profit in 76-year history

OpenAI's CEO Altman casts global gaze in urging AI regulation in US

If the company can successfully integrate the new AI features to its products that serve hundreds of millions of people, it should “build further confidence in AI driven upside to come,” Nowak wrote in a research note after the event.

For Bill Ackman’s Pershing Square, the stock’s gains have come at an opportune moment. On Monday, the hedge fund disclosed the purchase of more than 10 million of the firm’s Class A and Class C shares in the first quarter, worth about $1.2 billion at current prices.
Others have also benefited. Google co-founder Sergey Brin gifted Alphabet shares worth roughly $600 million on Thursday during a week that saw his wealth grow by the most in more than two years.

Even after such a strong rally, Alphabet isn’t expensive relative to peers. At 19 times, the stock’s price-to-projected profit ratio is the highest in months, yet it’s still much cheaper than Microsoft and Apple, which are priced at 29 and 27 times, respectively.
Of course, there are still plenty of skeptics. Loop Capital analyst Rob Sanderson says lingering concerns about AI risks will prevent Alphabet’s cheaper market valuation multiple from expanding. The analyst cut his rating on the stock to hold from buy on Monday, even though he sees the company as a major beneficiary of AI adoption in the long run.

“We do not see this as an existential threat to Google, but this behavior will become a competitive force against its dominance in connecting users to information,” he wrote.
Tech Chart of the Day

Alphabet’s surge in the last week has propelled its relative strength index beyond the level of 70 that signals to some technical analysts that a stock may have risen too far, too quickly. The shares were trading higher 0.4% on Tuesday, still remaining in overbought territory.

First Published: May 16 2023 | 9:13 PM IST

Explore News