Is Google A Buy Ahead Of Apple’s WWDC In June Amid AI Licensing Talks?

Is Google A Buy Ahead Of Apple’s WWDC In June Amid AI Licensing Talks?

Amid the emergence of generative artificial intelligence, there’s debate over whether Google parent Alphabet (GOOGL) stands out as a tech industry leader or laggard. What’s clear is that generative AI presents new opportunities as well as risk for Google stock.

One big question for GOOGL stock: how will integrating chatbot AI technology into search queries impact advertising revenue?




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Google Stock: Possible Catalysts

At the Google I/O event for software developers on May 14, Google made a slew of AI announcements.

Both startup OpenAI and Google are in AI licensing talks with Apple (AAPL). UBS analyst Sephen Ju said in a report: “We now look to WWDC24 as the next potential catalyst venue because we believe what I/O 2024 showed off is as good an audition as any for that role (upgrading iPhone Siri search with AI technology). Apple’s WWDC starts June 10.

Meanwhile, Alphabet hosts Google Marketing Live on May 21.

As of  May 16, Google stock had advanced 24% in 2024. Some technical ratings have improved. Further, Google stock ranks No. 47 in the IBD 50 roster of growth companies.

Google reported first-quarter earnings and revenue that handily beat consensus estimates while the internet giant  announced its first-ever dividend and a new $70 billion stock buyback.

Google did not provide an update on its search for a new chief financial officer.

Despite fast-rising capital spending amid AI investments, Google told analysts it expects operating margins to expand in 2024 as it moderates expense growth and targets efficiency gains across the business.

Generative AI Momentum?

The company’s Google Cloud Next conference took place in early April. At the event for enterprise customers, Google highlighted new generative AI use cases from companies spanning across various industries.

 

In March, Google became ensnared in a controversy over its Gemini-powered gen AI chatbot.

Also, Google stock is among many AI stocks to watch.

DOJ Anti-Trust Case Ruling Looms

Meanwhile, a ruling in the Justice Department’s nonjury antitrust trial vs. Google is pending.  Final arguments in the case were heard May 3.

A ruling could come in weeks or months.

The government alleges Google maintains an internet search monopoly “through exclusionary distribution agreements that steer billions of search queries to Google each day.”

Google’s payments to Apple are under scrutiny in the anti-trust lawsuit.

If Google loses, U.S. District Judge Amit Mehta could order a Google breakup or changes to the way Google promotes its search engine.  Google will likely appeal any court decision.

Due to its huge cash holdings, Google stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.

With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver. But Google suffered a big legal defeat by Fortnite maker Epic Games. As a result, Alphabet has opened up its wireless App Store.

‘Other Bets’ Under New Scrutiny

Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015.

Further, Alphabet’s money-losing “Other Bets” and Moonshots are company assets that investors should monitor for new developments, according to an IBD report.

Google’s Other Bets piled up $37.3 billion in operating losses since 2014 on revenue of just $7.3 billion. For Google stock, the good news is that financial results improved in 2023. Other Bets reported an operating loss of $4.1 billion last year on revenue of $1.5 billion.

And, Alphabet is letting Other Bets like Google Fiber seek outside investors in a move that could lead to spin-offs. But determining the current valuations of Google’s self-driving-car project Waymo and Verily Life Sciences are big challenges.

Google Stock: YouTube Growing Fast

In addition, Google aims to counter Microsoft‘s (MSFT) investment in artificial-intelligence startup OpenAI by making its own generative AI tools available to software developers.

In early December, Google unveiled its much-anticipated, next-generation, large language model (LLM) called Gemini.

Google’s cloud-computing unit claims to be working with 70% of generative AI startups. Also, Google’s cloud unit is developing close ties with Salesforce (CRM), one of the biggest enterprise software makers.

YouTube Chief Executive Susan Wojcicki in February 2023 announced her departure. She was replaced by longtime YouTube executive Neal Mohan.

Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2024, analysts say. YouTube Shorts now generates roughly 70 billion daily views.

YouTube TV has more than 8 million paying subscribers, up from 5 million in 2022, Google said in a blog on Feb. 6. That makes Google TV the fourth biggest provider of internet TV services. YouTube TV acquired rights to National Football League’s NFL Sunday ticket last fall. The move has boosted subscriber growth.

Under Pichai, Google has improved transparency. Google began disclosing cloud-computing financial metrics with its fourth-quarter report in fiscal 2020. But the cloud business has yet to turn a profit. And YouTube’s profitability still remains a mystery.

Boosting Ad Business Through E-Commerce

Alphabet aims to boost its advertising business through e-commerce-related internet search. At the same time, it hopes to chip away at Amazon.com‘s (AMZN) dominance in product search.

Google’s internet search business will hold up better than other advertising formats, such as social media, analysts say.

Google has rolled out the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Gmail, maps and other applications. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.

Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products.

At a Google developers conference in mid-May 2023, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.

OOGL Stock Fundamentals

In Q1, Google earnings came in at $1.89 per share, up 61% from a year earlier.

A gain of $2.2 billion from equities on Google’s balance sheet boosted Q1 earnings by about 15 cents. The tech giant reports earnings under generally accepted accounting principles, also known as GAAP.

Further, gross revenue rose 15% to $80.54 billion. Analysts had predicted Google earnings of $1.51 per share on revenue of $78.7 billion.

Additionally, advertising revenue rose 13% to $61.66 billion, topping estimates of $60.44 billion.

Meanwhile, YouTube ad revenue rose 21% to $8.1 billion, beating estimates of $7.7 billion.

Google said cloud-computing revenue rose 28% to $9.574 billion, above estimates of $9.4 billion.

In Q1, Google’s capital spending jumped 91% to $12 billion, up from $11 billion in the December quarter and $6.3 billion in the year-earlier period.

Google Stock: Cloud, Hardware, Security Acquisitions

Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.

Also, Google’s acquisition of smartwatch maker Fitbit closed in January 2022. The $2.1 billion purchase should help Google make a push into the health and fitness market, analysts say.

Google’s cloud-computing business, meanwhile, faces tough rivals in Amazon and Microsoft.

Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.

In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.

More acquisitions to boost Google’s cloud business could be coming, analysts say. Google acquired cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.

GOOGL Stock: Is It A Buy Or Sell Now?

Alphabet stock has turned in good and bad years recently. GOOGL stock jumped 65% in 2021. But in 2022, Google stock dropped 39%.

Despite mounting competition in AI and internet search, Google stock advanced 58% in 2023. That was better than the 43% jump in the Nasdaq composite. The S&P 500 rose 24%.

Also, Google’s Relative Strength Rating currently stands at 87 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better. The relative strength line has tumbled.

GOOGL stock holds an Accumulation/Distribution Rating of D-plus. That institutional ownership rating analyzes price and volume changes in a stock over the past 13 weeks of trading.

Further, shares hold an IBD Composite Rating of 98 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.

On MarketSurge, Google stock holds an entry point of 153.78. As of May 16, Google stock is extended and trades well above a 5% buy zone.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.

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