Alphabet (GOOG 9.96%) (GOOGL 10.22%) investors are flying high -- and so is their stock. On Monday, shares of the internet search-and-advertising giant got a 4.1% lift from news that Apple might bundle Google Gemini artificial intelligence (AI) tools onto its iPhones. Then on Friday came more good news: Investment bank Wedbush slapped a "best ideas" label on Alphabet and raised its price target for Alphabet stock to $175 a share -- implying this $150 stock could gain 17% in the next 12 months or so.
Is Alphabet stock a buy?
Wedbush analysts note that Alphabet possesses an "unmatched" library of data, images, texts, and videos with which to train its Gemini AI product, as well as a "massive" base of YouTube, Android, and other Alphabet product users providing more data every day.
Scale is important in machine learning, which tries to answer questions by crunching lots of data and guessing at what word most logically follows the last when composing an answer. The more data an AI has access to, the more likely it will guess right -- and Google's 95% share of internet search, for example, gives it that scale. Alphabet thus starts out the AI wars with more data than its rivals, and can further monetize this data by selling it to those rivals should Alphabet so desire. (And by the way, as Wedbush points out, Alphabet has a "proven track record of effective monetization" when deciding which route to pursue).
Most analysts see Alphabet growing its earnings at 16% annually over the next five years, and even those predictions may prove conservative. Over the last five years, S&P Global Market Intelligence data shows Alphabet has grown its sales at nearly 18% per year on average. Its profits have grown at more than 19% annually.
At a valuation of less than 25 times earnings, Alphabet stock may not exactly be cheap. But it's such a dominant company, its core ads business so secure, and its competitive position in AI so strong, that I think Alphabet stock is probably worth paying the premium.
