Recent advances in artificial intelligence (AI) have ignited a sea change in the adoption of these next-generation algorithms. Investors are being swept up in the possibilities, but in most cases, AI is used to improve existing processes, thereby increasing productivity. In other cases, AI offers an intriguing opportunity that could result in much greater profits.
Analysts at Argus Research boosted their price target for Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) stock to $200 while maintaining a buy rating on the shares. This represents potential gains for investors of 22% over the coming year, compared to Wednesday's closing price.
Lots of ways to profit
The analyst points to Alphabet's first-quarter financial results as evidence that the company is firing on all cylinders across its vast multisegment empire, and the analysts have a point. Alphabet's revenue growth accelerated to 15% year over year and 16% in constant currency, marking its strongest showing in three years.
Google Search, YouTube, and Google Cloud all contributed to the gains, with revenue increasing by 14%, 21%, and 28%, respectively. Furthermore, the analysts cited the company's cost-cutting campaign for boosting Alphabet's operating income by 46%.
Taken together, the strong segment results and expanding bottom line show how Alphabet is able to invest heavily in AI, which will increase the company's future profit potential.
Despite regulatory uncertainties and antitrust litigation, Google "remains an advertising juggernaut," as evidenced by the aforementioned results. Add to that the solid results by YouTube and Google Cloud, and it's easy to see the numerous ways in which Alphabet can thrive. And that's without even considering the AI connection.
It's also worth mentioning that Alphabet just revealed plans to begin paying a dividend -- a first for the search giant. This helped propel that company's market cap above $2 trillion, another first for the stock.
Finally, at just 25 times earnings, Alphabet is selling at a discount to the price-to-earnings (P/E) ratio of 27 for the S&P 500 while offering significantly more upside potential. For these reasons and more, Alphabet is a buy.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
