Alphabet adds US$115 billion in value after defying AI doubters

ALPHABET is back in the game. The artificial intelligence (AI) game, that is.

Shares in the Google owner had lagged behind other megacaps this year amid fears it was losing ground in the race to deploy AI products. Yet since it unveiled its latest AI tools at a developer’s conference last week (May 10), the stock has advanced 9 per cent, adding US$115 billion in market value and erasing its underperformance against peers like Apple and Microsoft.

“Investors are questioning whether Alphabet is a winner or loser as AI changes the landscape,” said Jason Benowitz, senior portfolio manager at CI Roosevelt. “This puts them more solidly in the winner camp.”

With excitement around AI building, Alphabet had largely missed out on the stellar gains seen by many of its tech peers, particularly as the rapid growth of OpenAI’s ChatGPT is seen as a potential threat to the dominance of its search business. So last week’s announcement of a more conversational search engine and that the company is making its AI-powered chatbot more broadly available provided a timely boost.

Morgan Stanley analyst Brian Nowak was among Wall Street analysts heartened by Google’s presentation after what he called “AI overhang” in the stock.

If the company can successfully integrate the new AI features to its products that serve hundreds of millions of people, it should “build further confidence in AI-driven upside to come”, Nowak wrote in a research note after the event.

For Bill Ackman’s Pershing Square, the stock’s gains have come at an opportune moment. On Monday, the hedge fund disclosed the purchase of more than 10 million of the firm’s Class A and Class C shares in the first quarter, worth about US$1.2 billion at current prices.

Others have also benefited. Google co-founder Sergey Brin gifted Alphabet shares worth roughly US$600 million on Thursday, during a week that saw his wealth grow by the most in more than two years.

Even after such a strong rally, Alphabet is not expensive relative to peers. At 19 times, the stock’s price-to-projected profit ratio is the highest in months, yet it is still much cheaper than Microsoft and Apple, which are priced at 29 and 27 times, respectively.

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Of course, there are still plenty of sceptics. Loop Capital analyst Rob Sanderson said lingering concerns about AI risks will prevent Alphabet’s cheaper market valuation multiple from expanding. The analyst cut his rating on the stock to “hold” from “buy” on Monday, even though he sees the company as a major beneficiary of AI adoption in the long run.

“We do not see this as an existential threat to Google, but this behaviour will become a competitive force against its dominance in connecting users to information,” he wrote. BLOOMBERG