Alphabet’s GOOGL Google and Vodafone announced a 10-year expanded partnership on Monday that encompasses cloud, cybersecurity, and devices across Europe and Africa.

The deal will see Vodafone’s increased access to Google’s AI-powered Pixel devices that leverage its 5G network in Europe. Vodafone will incorporate Google Cloud’s generative AI (Gen AI) into its set-top boxes, increasing user experience through improved content search and recommendations. This will also help Vodafone to roll out advertising using Google Ad Manager in the long haul.

Apart from the expansion of the Android ecosystem across Europe and Africa, Alphabet will benefit from growing usage of its Gemini models, Google Cloud’s Vertex AI enterprise-ready AI platform, and Google Cloud’s Security Operations platform.

Alphabet Stock Rides on Strong AI Push

Alphabet is riding on strong demand for its AI and Gen AI services. Its continuing dominance in the search domain and growing footprint in autonomous driving technology are noteworthy. 

GOOGL shares have appreciated 10.6% in the past month, outperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have returned 9.8% and 6.4%, respectively. 

Alphabet shares have also outperformed its “Magnificent 7” peers Apple AAPL, Amazon AMZN, Microsoft MSFT and Tesla over this period. NVIDIA and Meta Platforms are the only two Magnificent 7 peers that have outperformed GOOGL shares over the same timeframe.

Shares of Apple, Amazon, Microsoft, Tesla, NVIDIA and Meta Platforms have returned 2.6%, 1.8%, 0.1%, 8.1%, 22.6% and 17.5%, respectively.

GOOGL’s One-Month Performance

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Earnings Estimate Revisions Trend Higher for GOOGL

The Zacks Consensus Estimate for 2024 revenues is pegged at $292.3 billion, indicating 13.95% year-over-year growth. 

The consensus mark for 2024 earnings is pegged at $7.63 per share, up by a penny over the past 60 days, and suggests 31.55% growth from the figure reported in the year-ago quarter.
 

Alphabet’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 9.6%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Google’s AI Push to Aid Alphabet’s Prospects

Increasing demand for its AI model, Gemini, has been a key catalyst for Google. Gemini comes in four sizes, forming a versatile model family that runs efficiently on everything, from data centers to devices.

Google is leveraging Gemini to expand its footprint among enterprises. It offers an enterprise-focused AI code completion and assistance tool, Gemini Code Assist. Google’s Vertex AI enables developers to train, tune, augment and deploy applications using Gen AI models.

Google offers Gemma 2, which belongs to its family of lightweight, state-of-the-art open models called Gemma, to researchers and developers across the globe. Its unveiling of LearnLM, a family of GenAI models designed for conversational tutoring on various subjects, is noteworthy.

The integration of GenAI technology into the search engine is benefiting Google Search. Large Language Models, coupled with multi-search and visual exploration features, are continuously improving the search results.

Regulatory Headwinds Make GOOGL Stock a Risky Bet

Alphabet is facing increasing regulatory headwinds and global scrutiny over its search dominance. Google’s alleged wrong practices constitute the utilization of Android to promote its own search engine unfairly. It is facing several lawsuits regarding data privacy, competition practices, AI usage, and copyright issues in several countries across the globe.

On Tuesday, the Department of Justice (DOJ) indicated that it may seek to break up Google’s businesses as part of an antitrust solution. The plan includes preventing Google from using Chrome, Play and Android offerings that help it maintain search dominance. 

The DOJ also plans to limit or prohibit revenue sharing agreements that Google currently has with the likes of Apple and Samsung related to search. This move is expected to reduce Google’s dominance in the search and search product-related markets.

DOJ recommendations follow a U.S. judge’s ruling in August that found Google running a monopoly in the search market.

GOOGL Stock is Overvalued

The Value Score of C suggests a stretched valuation for Alphabet at this moment.

Alphabet stock is trading at a premium with a forward 12-month Price/Sales of 6.36X compared with the industry’s 5.84X.

Price/Sales Ratio (F12M)

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GOOGL Stock - Buy, Hold or Sell?

Alphabet’s growing GenAI capabilities present a potential catalyst for future growth. Its dominant position in the search engine market and first-mover advantage in the autonomous driving space are long-term drivers.

However, stiff competition in the cloud space from the likes of Microsoft and Amazon is a headwind. Alphabet continues to face rigorous scrutiny and any scenario involving a forced breakup by the U.S. government can have serious repercussions over its prospects.

Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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