The artificial intelligence wave is sweeping the world, investors are pouring in, and the AI stock market continues to heat up. However, there are risks hidden behind the market enthusiasm. Some stocks are overvalued and may face adjustments in the future. The editor of Downcodes will take you to analyze the investment opportunities and challenges in the field of artificial intelligence, focusing on the layout and development prospects of Alphabet (Google's parent company) in the field of generative AI, as well as the investment value of its stocks.
As the artificial intelligence (AI) craze continues to heat up, investor enthusiasm for the field seems to have reached new heights. However, questions remain about whether the market's enthusiasm for AI stocks is overhyped. Take Nvidia, for example. Its stock price has soared tenfold in just a few years, but this lofty valuation may lead to future market corrections.
Nonetheless, the generative AI market is still in its early stages of rapid growth. Some analysts predict that spending on generative AI will reach $356 billion by 2030, with an average annual growth rate of 46%. By comparison, spending this year is expected to be just $36 billion. Since Nvidia's valuation already reflects this growth, investors should probably look at other potential beneficiaries.
Among many technology companies, Google parent company Alphabet (NASDAQ: GOOGL) is particularly eye-catching. Since OpenAI launched ChatGPT at the end of 2022, Alphabet investors have worried about its future, causing its stock price to fall to its lowest price-to-earnings ratio (P/E) in a decade of about 15. However, Alphabet's stock price has rebounded over the past two years, with a cumulative return of 90%.
Through its various subsidiaries and research laboratories, Alphabet has successfully launched a number of new AI products, including the NotebookLM document summary tool, Google search AI summary function, and Google Lens, which can be searched by taking photos. These innovations show that Alphabet has not only made progress in the field of generative AI, but also achieved remarkable results in other technologies such as autonomous driving. Its Waymo has expanded operations in many cities in the United States and completed 100,000 rides per week. Services have grown tenfold every year.
In terms of profit model, Alphabet is relying on its cloud computing business Google Cloud to achieve profitability. Google Cloud uses Alphabet's AI technology, computing chips and data centers to sell related tools to third-party customers. In the most recent quarter, Google Cloud's revenue increased 35% year-on-year to $11.4 billion. The business is expected to reach $100 billion in annual revenue and 25% profit margins in the next few years, which will contribute $25 billion in operating income to the parent company.
Despite Alphabet's performance in AI, its stock valuation remains lower than many of its peers, with a current P/E ratio of 23, compared with Nvidia's 66 and Apple's 37. Given that generative AI revenue will grow rapidly over the next decade, Alphabet will undoubtedly occupy a significant position in this market, and investors can buy the stock today at a relatively low valuation.
All in all, although there are risks in the AI market, Alphabet has significant competitive advantages in the field of generative AI with its strong technical strength and diversified business layout. The long-term investment value of its stocks is worthy of attention. The editor of Downcodes reminds investors to be cautious when investing. The above analysis is for reference only and does not constitute investment advice.