The market is underestimating the tremendous strides Alphabet (Alphabet Stock Quote, Chart, News, Analysts, Financials Nasdaq:GOOGL) has made in AI.
That’s the opinion of ROTH MKM analyst Rohit Kulkarni, who in a research update to clients December 7, maintained his “Buy” rating on GOOGL while raising his price target on the stock from $152.00 to $166.00.
On December 6, Alphabet introduced the rollout of Gemini, which it described as its “largest and most capable AI model”.
Today, we’re a step closer to this vision as we introduce Gemini, the most capable and general model we’ve ever built,” said Demis Hassabis, who is CEO and Co-Founder of Google DeepMind. “Gemini is the result of large-scale collaborative efforts by teams across Google, including our colleagues at Google Research. It was built from the ground up to be multimodal, which means it can generalize and seamlessly understand, operate across and combine different types of information including text, code, audio, image and video.”
“We are impressed with the speed of AI innovation at Google this year,” Kulkarni said. We believe Google has delivered more innovative AI products, exceeding Microsoft and OpenAI’s output, particularly after having a late start in the AI wars and completing a somewhat disruptive re-org in April this year, merging Google Deepmind, Google Research, and Google Cloud divisions. We are now incrementally positive about what Google AI could deliver in 2024 and its unique position to have an amplified benefit from multi-modal AI capabilities inside its eight apps with more than a billion monthly active users. Year to date, Google’s shares have underperformed the rest of Magnificent 7, largely driven by a flattish P/E multiple over the past year (the rest of the group’s P/E and EV/EBITDA multiples are up approximately 25% on average).”
The analyst thinks GOOGL will post EPS of $5.91 on revenue of $307.3-billion in fiscal 2023. He expects those numbers will improve to EPS of $6.90 on a topline of $345.5-billion the following year.
“MSFT shares have re-rated since Chat-GPT launch: We expect GOOGL shares to follow suit over the next six months,” the analyst added. “MSFT shares are up 55% while GOOGL shares are up 30% (vs. S&P 500 +14%). Over this period, MSFT’s P/E ratio has increased from approximately 23.0x in late November 2022 to approx. 29.0x today, implying a 25% multiple uplift. GOOGL’s multiple has stayed near 19.5x, largely driven by somewhat negative AI sentiment.”
At press time, shares of GOOGL were down 1.3 per cent to $135.14.
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