Alphabet (GOOGL 10.22%) (GOOG 9.96%) shares crushed it last year. The tech giant saw its stock climb 58%, as the "Magnificent Seven" businesses all rewarded shareholders with monster gains.

As the calendar has turned to 2024, bullish investors have their sights set on a new target price. Can this FAANG stock hit the $200 mark this year, which translates to 40% upside from today's levels? Let's take a closer look.

Waiting on a favorable backdrop

In the second half of 2022 and into the beginning of 2023, Alphabet saw its revenue growth start to slow due to macro headwinds. This was felt among other digital advertising companies as well.

However, the situation has been improving. In the latest quarter (third-quarter 2023 ended Sept. 30, 2023), the business reported revenue of $76.7 billion, which was up 11% year over year. Not only did this top line figure exceed Wall Street estimates, but it was also the fastest pace of growth since the second quarter of 2022. It's likely that for the shares to perform well in 2024, Alphabet's fundamentals will need to keep up the strong momentum.

Because Alphabet generates the bulk of its revenue from digital advertising, developments in this industry have a huge effect on the company. According to eMarketer, digital ad spending should pick up this year, presenting Alphabet with a favorable backdrop.

Making AI progress

The topic that attracted the most attention in 2024 was artificial intelligence (AI). The rising popularity of large language models, like OpenAI's ChatGPT, created a race among tech companies to see who could introduce new products and services developing AI capabilities. Many observers see this as a revolutionary technology, so it makes sense that businesses and investors are extremely interested in what's to come.

Alphabet isn't sitting around resting on its laurels. CEO Sundar Pichai labeled the business as an AI-first enterprise several years ago. The company's key services, like Search, Maps, Gmail, and YouTube, for example, have long integrated AI to better serve users. Looking ahead, Alphabet will continue to introduce new features in its product and service offerings, many of which have more than 2 billion users worldwide.

In the company's Google Cloud platform, there is a massive opportunity. "Thousands of customers and partners are already using Google Cloud to capture the potential of AI," Pichai said on the Q3 2023 earnings call. As IT spending shifts off-premises, the importance of Google Cloud as an AI hotbed will only become more pronounced.

Capital investments are being made in expanding data infrastructure to keep Alphabet at the forefront of AI technology. This company has a huge benefit thanks to its $120 billion in cash, cash equivalents, and marketable securities, as well as sizable free cash flow generation, that affords it the ability to invest heavily in new initiatives.

More recently, Alphabet finally launched its Gemini AI model to rival ChatGPT. Gemini does perform better than its competitor in certain areas. Further advancements in AI in 2024 should only strengthen Alphabet's competitive position.

Investors should temper expectations

Based on Alphabet's current price of just under $143, shares would need to rise about 40% by the end of this year for the stock to hit $200. To be clear, this would be a fantastic gain, and it would build on the impressive return investors achieved in 2023.

However, it's impossible to predict 12-month stock price movements, as this involves assessing changes in investor sentiment. Right now, Alphabet stock trades at a price-to-earnings ratio of 27.3, in line with its trailing five-year average. It's anyone's guess what this valuation multiple will be at the end of 2024.

I wouldn't be surprised if shares did end up heading to $200. But on the other hand, I think it's completely possible that the stock could fail to reach this mark.

Regardless of what the shares do this year, Alphabet is still a company to consider owning for the long haul.