Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has dedicated nearly a decade to advancing artificial intelligence (AI), a market poised for robust growth in the coming decade. This transformative technology holds the potential to reshape work processes and everyday life, making it an essential focus for tech industry players.
Recently, Alphabet achieved a significant milestone in its AI efforts with the launch of Gemini, its most powerful AI model to date. Gemini’s impact is expected to extend across Alphabet’s diverse array of businesses, from enhancing Google Search to fortifying its cloud computing offerings. The company has underscored its commitment to integrating Gemini into all its products and services, signifying its broad-reaching utility from empowering features in the Pixel 8 Pro smartphone to providing a development platform for app creators.
The pinnacle in search technology
Alphabet’s operations encompass various sectors, including Google Cloud’s cloud computing services and the sale of hardware such as phones and watches. However, the company’s most substantial and widely recognized business is its dominance in Google Search. With a staggering 91% share of the global search market, Google stands unparalleled, leaving competitors like Microsoft‘s Bing, which boasts a meager market share of less than 4%, in its wake. Testament to Google’s dominance is the integration of the term “Google” into everyday vernacular as the default solution for obtaining information.
The true value of Gemini and Alphabet’s broader AI initiatives may lie in bolstering its search capabilities. By strategically enhancing its search engine, Alphabet aims to fortify its position at the forefront of the industry, rather than resting on its laurels.
Pioneering advertising revenue
Presently, Google advertising accounts for the lion’s share of Alphabet’s revenue, with businesses leveraging the platform to promote their offerings to users using the search engine. In the most recent quarter, Google advertising contributed a substantial 75% of total revenue.
By delivering faster and more efficient search results, AI technology ensures user loyalty, thereby securing the continued patronage of advertisers. Gemini is also directly involved in assisting advertisers in crafting superior ad campaigns through an AI-powered chat experience.
While Gemini is expected to yield benefits across Alphabet’s various segments, its potential to drive and augment revenue growth is most pronounced in the domain of search, given the company’s indomitable leadership in this sector and its associated advertising revenue stream.
Implications for investors
Alphabet has consistently delivered strong earnings growth and has effectively solidified its dominance in search while nurturing the expansion of its other business verticals over time.
Even amid challenging economic landscapes, such as those encountered over the past two years, Alphabet has managed to report revenue growth. Furthermore, the company’s shares are currently trading at a modest forward earnings multiple of 21x, a marked decline from 30x a year prior. This presents investors with an attractive opportunity to capitalize on Alphabet’s potential, particularly as Gemini contributes to the enhancement of its primary business.
Considering these factors, now is an advantageous time for investors to consider investing in Alphabet, as they stand to benefit from the transformative impact of Gemini on the company’s flagship search business.
