Following its November launch, ChatGPT reached 1 million users in just five days, and the generative artificial intelligence (AI) application has become more popular since then.
Wall Street sees enormous upside in the technology. Goldman Sachs says generative AI could boost economic output by $7 trillion worldwide over the next decade, and Ark Invest believes AI software could generate $14 trillion in revenue by 2030.
Fortunately, right now is a particularly good time to invest in stocks. Many companies' share prices fell sharply amid bear market, so buying opportunities abound for patient investors. But Alphabet (GOOG -4.08%) (GOOGL -4.02%) is a particularly compelling option. Here's why this growth stock is worth buying.
Alphabet is a leader in artificial intelligence
Alphabet invested heavily in AI over the years, infusing the technology into many of its most important products. For instance, Google Search leans on AI to understand language and surface more helpful results, Google Ads uses AI to improve campaigns and boost conversion rates for marketers, and YouTube employs AI to engage viewers with the most relevant recommendations.
Suffice it to say those investments have paid off handsomely. Google holds a 92% market share in internet search, it accounted for nearly 30% of global digital ad spend last year, and YouTube is the most popular streaming service as measured by viewing time.
Meanwhile, Alphabet has also been gaining market share in cloud computing. Google Cloud Platform accounted for 10% of cloud infrastructure and platform services (CIPS) in the first quarter, up from 8% last year, and some of that success is undoubtedly due to its AI expertise.
Google is a leader in AI infrastructure and AI-powered document analytics, according to Forrester Research. Google is also a leader in conversational AI platforms, according to Gartner. But the company is still investing in research and development. Google recently introduced several new AI products at its I/O developer conference in May.
One of the most exciting innovations is PaLM 2, a large language model that will power more than 25 other products and features, including the intelligent chatbot Bard. Similar to ChatGPT, Bard answers questions ranging from simple reasoning to complex math, but it can also generate images and write code. Beyond Bard, PaLM 2 will power generative AI features across Google Workspace, helping users compose text in Google Docs and Gmail, create images from text description in Google Slides, and organize data in Google Sheets.
However, PaLM 2 is just one stepping stone on a much longer path. Google is already working on its next big AI model, Gemini.
Alphabet is battling temporary headwinds
Unfortunately, Alphabet delivered lackluster financial results in the first quarter despite its AI expertise. Revenue rose just 3% to $69.8 billion and earnings fell 5% to $1.17 per diluted share. But slowing growth and the dip in profitability can be attributed to the challenging business environment. Many companies have cut ad and IT budgets to compensate for economic uncertainty brought by high inflation and rising interest rates.
Alphabet should be able to reaccelerate growth when economic conditions improve, and the stock could soar when the next bull market rolls around. According to industry experts, cloud computing spending will increase 14% annually to reach $1.6 trillion by 2030, and ad tech spending will grow 14% annually to hit $2.4 trillion over the same period. Alphabet is well positioned to benefit from those tailwinds.
With that in mind, shares currently trade at about 5.6 times sales, a discount to the three-year average of 6.5 times sales and a reasonable price given the future growth opportunities. That's why this AI growth stock is worth buying.
