Alphabet (GOOG -1.94%) (GOOGL -2.03%) recently notched a new all-time high. While this may cause some to be hesitant about purchasing the stock, I think it's a great sign that investors are finally starting to realize Alphabet's potential.
If you're on the fence about buying Alphabet stock right now, I'd consider picking up some shares before April 25, as there could be some huge news that day that could kick-start a massive bull run in the stock.
Advertising is a key part of Alphabet's business
So, what's so important about April 25? April 25 is the day of Alphabet's first-quarter conference call, and I think it could be a huge day for the company. At the start of 2024, Alphabet dealt with some bad press related to its artificial intelligence (AI) product rollout. All signs pointed to Alphabet being behind many of its competitors in key areas, but investors forgot that AI isn't Alphabet's main business; advertising is.
In Q4, Alphabet's advertising revenue increased by 11% to $65.5 billion. That's an acceleration of growth compared to Q3's 9% rise. With advertising making up around 76% of Alphabet's revenue in Q4, it plays a much larger role than AI.
However, with a large part of this revenue coming from the Google search engine, many might argue that with the rise of products like ChatGPT, Google's days could be numbered. While this is a fair argument, Google's search engine market share has barely budged from its 95% or greater grasp on its market despite Bing integrating ChatGPT months ago. It's hard to break consumers' habits, and Google is still ingrained in most people's daily lives.
When Alphabet reports on April 25, I expect another quarter of robust advertising growth, as the year-over-year comparison will be fairly easy since many businesses were worried about a recession during Q1 last year. Furthermore, with other advertising businesses, like Meta Platforms, forecasting strong Q1 growth, it bodes well for Alphabet.
While advertising should have a strong quarter, Alphabet's AI game is also improving.
Alphabet's latest AI products have been more accepted by the market
Alphabet is taking on multiple competitors at once in the AI world.
Its generative AI model, Gemini, may have struggled initially when it launched. However, Gemini 1.5 has multiple advantages over competitors like ChatGPT. Gemini 1.5 outperforms it in benchmark tests, such as the massive multitask language understanding test, the first model to outperform human experts.
Alphabet is also increasing the performance of its AI models in its cloud computing offering, Google Cloud. Although it's still purchasing many Nvidia graphics processing units (GPUs) for its data centers, Alphabet is also rolling out its new tensor processing unit (TPU) made by Arm. While TPUs won't outright replace GPUs, they are faster and more efficient than GPUs when processing workloads specifically designed for the hardware, like training AI models.
This gives Google Cloud users key advantages over other providers, making it a no-brainer choice when deciding where to run AI workloads.
With Alphabet's primary business still holding strong and its AI business starting to pick up the pace, I'm confident Alphabet's stock can move higher following a strong Q1 earnings report. Throw in a reasonable 23 times forward earnings valuation, and the stock looks like a solid buy.
GOOGL PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
Alphabet is primed for more upside, and I think investors would be wise to start or increase their positions before Q1 earnings are released.
