With a stock price up 44%, Alphabet (GOOGL 0.42%) (GOOG 0.58%) stock has easily outperformed the S&P 500 over the last 52 weeks -- and its run might not be done. Alphabet shares could soar $30 over the next 52 weeks, as Oppenheimer analyst Jason Helfstein wrote in a note on TheFly.com Monday morning.
The reason won't surprise you (not if you've been paying any attention at all to the stock market over the past year, at least): It's artificial intelligence (AI) -- or rather, AI's deficiencies.
NASDAQ: GOOG
Key Data Points
Is Alphabet stock a buy?
Surveying 1,000 users on how they use search and artificial intelligence chatbots, Oppenheimer discovered that most internet users still prefer to use Google search to find answers to their questions. For all its hype and all its potential, AI remains more of an afterthought or a complement to the kind of ordinary internet searches that generate the bulk of Alphabet's advertising revenue.
For a company like Alphabet, that's great news. According to the latest data from Statista.com, Google retains an 82% market share in desktop search and an astounding 95% share in the more important category of mobile search. Believe it or not, that means the longer internet users prefer search over AI -- the better for Alphabet.
Will this change over time? Perhaps -- but it might actually change for the better. Addressing rumors that Apple (AAPL 2.15%) might integrate Alphabet's Gemini AI chatbot into future iPhones, the analyst says this could prove a popular option among iPhone users. But whether Alphabet integrates more with Apple, or things just stay as they are, Alphabet's competitive position -- and its revenue stream that generates $69.5 billion in annual free cash flow, should remain secure either way.
At a valuation of more than 27x FCF, with a growth rate estimated at only 17% over the next five years, Alphabet stock still looks a bit on the expensive side. Then again, it may be worth paying a bit of a premium to own a stock that's this dominant in a supremely secure business.
