Stocks to buy

3 Reasons Why Alphabet Is (and Always Will Be) a Growth Stock Worth Owning

Despite critics suggesting Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) lags in generative AI and could be due for a pullback if the market turns sour, investors in GOOG stock need not fret. Alphabet is aggressively advancing in gen-AI with global product innovations. Given the persistent rise of generative AI, adding Alphabet shares to your portfolio today could be wise for potential gains in 2023.

Alphabet has solidified its global gen-AI leadership by expanding its Search Generative Experience (SGE) to over 120 countries and adding support for four new languages. The move follows successful launches in India and Japan, demonstrating Alphabet’s commitment to product enhancement and market dominance.

Here are three more excellent reasons why Alphabet should be in your portfolio now.

The Numbers Don’t Lie

For Google Cloud, the user utilizes Google Workspace, a paid version of Google Drive offering collaboration, conferencing, and additional features at a reasonable price, especially beneficial for freelancers. Google Services significantly drives Alphabet’s performance, boasting a 34.2% operating margin in 2022, outpacing Apple by 440 basis points. While Alphabet’s GAAP trailing 12-month P/E ratio and other conventional metrics are elevated compared to sector averages, their true value extends beyond these ratios.

Excluding YouTube ads, Other Bets, and hedging gains, Alphabet’s Google business made up 89% of its 2022 revenue, reaching $282.8 billion. If YouTube ads are included, the percentage rises to nearly 99%, or $279.8 billion. Google is further divided into Google Services (91% of revenue) and Google Cloud (9%). The user utilizes various Google Services like Chrome, Maps, search engine, YouTube, Gmail, and Google Drive.

Excellent Player in AI

Alphabet’s value and GOOG stock’s momentum hinge on the company’s anticipated future growth and leadership in artificial intelligence. In 2023, Alphabet, a key AI technology developer, is actively exploring an acquisition of Character.AI, a generative AI startup known for enabling users to interact with virtual celebrities and create their chatbots. This move aligns with Alphabet’s strategy to enhance its generative AI capabilities, potentially integrating Character.AI’s features into Google and YouTube.

Alphabet’s Bard generative AI chatbot, which faced challenges during its initial rollout, is making a comeback. Alphabet is now extending Bard’s reach to a younger audience with a dedicated version for teenagers. This iteration allows teens to seek advice on various topics, from class president speeches to university choices and sports exploration.

Bard for Teenagers aims to assist with math problems while incorporating safety features to prevent unsafe content. Targeting a younger demographic, this version could bolster Alphabet’s position in the AI space, challenging competitors in the evolving landscape of generative AI applications.

Promising Growth in the Coming Years

Alphabet, currently undervalued, experienced a notable turnaround in its ad business during Q3 2023, rebounding from 2022 declines caused by inflation-related cost-cutting. The company surpassed analyst expectations with an 11% year-over-year revenue increase, driven by robust growth in Google Search and YouTube segments.

Additionally, Alphabet’s resurgence in ad revenue is complemented by a significant upcoming venture into AI, with the imminent launch of Gemini, a large language model set to rival OpenAI’s GPT-4. This move positions Alphabet for substantial business enhancements and earnings growth.

Bet on GOOG Now

While Alphabet offers exposure to the generative AI market, Microsoft has a higher grade due to being a first mover. Alphabet’s global expansion of gen-AI, particularly in the search engine market, positions GOOG stock for potential growth in the remaining months of 2023 and throughout 2024. Investors are urged to consider this upward trajectory amid skeptics’ concerns.

I currently rate GOOG stock a buy, and while near-term headwinds could persist, I think this stock is worth accumulating, particularly on dips moving forward.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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