Shares in Google parent Alphabet (NASDAQ:GOOG,GOOGL) may have tumbled after last month’s quarterly earnings release, but so far this month, shares in this “Magnificent Seven” component have been rapidly bouncing back. Clearly, the market is catching onto the fact that the GOOG stock forecast is anything but dire. Instead, prospects still shine bright for Google.
Alphabet has both AI and non-AI catalysts on tap. When these potential catalysts become realized, they positively impact fiscal performance. GOOG’s upside potential may be substantial. Even as the bounce back has already begun, fear not! For those bullish on GOOG, current prices are a worthwhile entry point. Here’s why.
Alphabet Stock: The Market is Quickly Learning from its Mistake
As I also discussed in my prior write-up on Alphabet, the market bailed on shares post-earnings for a fairly arbitrary reason. Investors “sold on the news” with GOOG, not because the company missed on revenue or earnings, or because of weak guidance.
Rather, the sell-off was caused by the market overreacting to Alphabet’s quarterly advertising revenue ($65.5 billion) coming in slightly below expectations ($65.8 billion). Although falling short on ad revenue is hardly cause for celebration, it’s petty to make a fuss about it, when things are by-and-large firing on all cylinders at the company.
For instance, Alphabet’s YouTube and Google Cloud units both reported solid levels of top-line growth during the quarter (15.5% and 25.7%, respectively). Google Cloud’s operating income came in at $864 million, a significant swing from the $186 million loss reported in the prior year’s quarters..
While not certain, it’s possible that the market has realized its mistake, and has become appreciative of these positive aspects of the release.
It’s also possible that investors are taking to heart CEO Sundar Pichai’s statement regarding what the launch of Alphabet’s Gemini AI model means for the company: “the best is yet to come.”
Why There’s More Runway Ahead for the Rebound
With the bounce back, the market has become more bullish about the GOOG stock forecast. However, it’s not as if shares have made a full recovery. Trading for around $146.50 per share as of this writing, Alphabet remains slightly below its all-time high ($155.20 per share). GOOG hit this new high right before the aforementioned earnings release.
If the latest wave of broad market bullishness carries on, it may not be long before GOOG re-hits its high-water mark. Still, that doesn’t mean shares have limited upside, or that once the stock gets back to prior price levels, it’s all middling returns from here.
Again, thanks to the company’s AI and non-AI catalysts. While non-AI catalysts such as continued cost efficiency moves and a scaling back of its “Other Bets,” can provide a further boost to the bottom line, developments more directly related to the generative AI growth trend could boost both profits and GOOG’s valuation.
At present, Alphabet is integrating its latest AI technology across all of its business segments, including YouTube. This could help both enhance monetization of its various platforms/services, as well as help to keep the competition at bay.
GOOG Stock Forecast: It’s Not Too Late
Alphabet shares currently trade for just 21.7 times forward earnings. Compare that to the valuation of “Magnificent Seven” stocks receiving a greater level of appreciation for their AI-related growth catalysts.
Such names trade at higher valuation. In some cases, considerably higher valuations. Although relative value is more an art than a science, and hardly a foolproof strategy for investing success, relative value isn’t the sole reason GOOG is a buying opportunity.
The opportunity is because the above factors could both lead to stronger-than-expected results in the coming quarters, and finally put to rest the notion that Alphabet’s AI strategy is “too little, too late.”
As noted last time, that’s why the GOOG stock forecasts call for shares possibly hitting $200 per share before year’s end. Hence, if you’ve considered entering a position, it’s not too late.
GOOG stock earns a B rating in Portfolio Grader.
On the date of publication, neither LouisNavellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
Artificial Intelligence, Cloud, Communications, Media, Technology
