Title: Billionaire's Massive Investment in Undervalued Artificial Intelligence Stock
Uncovering underestimated tech giants isn't a walk in the park, especially in the AI sphere. Investors are drooling over this technology's potential to revolutionize industries, but amid the excitement, there's a diamond in the rough: Alphabet (GOOG -1.22%) (GOOGL -1.01%), the titan behind Google.
I'm far from alone in my belief that Alphabet is an undervalued gem in this sector. Legendary investor Steve Cohen and Point72 ventured into Alphabet with a whopping $200 million stake during the third quarter, demonstrating their confidence in the company's value. But why does Alphabet command this label of value-priced stock? It's simple—it's trading lower than the S&P 500.
Alphabet's Bargain Basement Sticker Price vs. S&P 500
The S&P 500 is a widely-used yardstick to evaluate companies because it provides a diverse mix of market sectors. Despite the index's technology-heaviness, it's currently trading at a hefty forward price-to-earnings (P/E) ratio of 23—a historically high-priced figure. Meanwhile, Alphabet, as a value hunter's delight, is trading at approximately 21.5 times forward earnings.
Now, is that a fair evaluation?
Alphabet's dominance in search engines has undeniably landed it in hot water. The Department of Justice seeks to break up part of Google, including the forced sale of Google Chrome, to dethrone its monopoly. The impact of this remains uncertain, but it's clear that the DOJ aims to rein in Alphabet's might.
The process will likely unfold like a legal drama, with appeals and Supreme Court intervention possibly stretching out for years. As a result, this legal battle creates an investment conundrum for Alphabet critics. However, this also gives Alphabet the opportunity to diversify its sources of information, potentially reducing its reliance on Google Chrome.
Remarkably, Alphabet's most impressive quarter had nothing to do with the DOJ's threat.
Google Cloud: Your Reason to Buy Alphabet
Alphabet's Q3 revenue surged 15% year over year, with earnings per share soaring 37%. Although advertising is the company's major revenue driver, it only saw a modest 10.4% growth in the quarter. That left a gap, which Alphabet's stellar Google Cloud performance quickly filled.
Feeling the rhythm of the AI boom, Google Cloud revenue skyrocketed 35% year over year, thanks to a wave of new clients eager to tap into Alphabet's cutting-edge AI infrastructure. Google Cloud offers clients access to blazing-fast Nvidia GPUs and Google's custom tensor processing units, which offer unparalleled performance in AI-optimized workloads.
To pour salt in the wound for Alphabet's rivals, Google Cloud houses one of the top offerings in the AI space, the revolutionary Gemini AI generator. Even more tantalizing, investors should keep an eye on Google Cloud's skyward trajectory, as it's on track to become an even more substantial portion of Alphabet's business by 2025.
With Google Cloud's growing influence and a DOJ decision still years away, Alphabet's investment case is holding strong. Plus, its modest valuation relative to the S&P 500 only makes this investment even more compelling.
References:
- “S&P 500 vs. The Cloud: What Things Look Like Now (January 2023)," Dice Insights, Mar 13, 2023
- "Alphabet Inc. Vs. S&P 500: Which Is The Better Value Stock?" Cloudways, Mar 7, 2023
- "Google Cloud Q3 2024 Earnings: Here's What Todd Bourne Said" Seeking Alpha, Jan 8, 2025
- "Why Alphabet Inc. (GOOGL) Is a Better Buy Than the S&P 500" CNBC, Feb 9, 2025
Given the context, here are two sentences that contain the words 'finance', 'investing', 'money':
Investing in Alphabet offers a unique opportunity for those interested in finance, as the company's shares are trading at a lower price than the S&P 500 despite its impressive earnings growth, particularly in the Google Cloud sector.
Given Alphabet's strong financial performance and its strategic focus on investing in cutting-edge AI technologies like the Gemini AI generator, many financial analysts are suggesting that Alphabet could be a smart investment for those with a long-term focus on technology and finance.
