We recently released an article featuring the Top 10 AI news stories you should be aware of. This piece will analyze Alphabet Inc. (Nasdaq: GOOG) in relation to other important AI developments.
Reid Hoffman, co-founder of LinkedIn, remarked in a recent CNBC discussion that the launch of Deepseek did not strike him or many tech insiders as particularly groundbreaking, as he expected advanced models to emerge eventually. However, he found China’s advancements in AI noteworthy, stating:
"The key takeaway is that China is highly competitive in this arena, which has been clearly demonstrated. There are certainly valuable developments coming out of there."
Hoffman expressed that greater efficiency in AI models would drive increased usage and applications, explaining:
"For instance, if a model can be trained on 1,000 GPUs, it could perform even better with 10,000. Consequently, companies might opt for the higher resource allocation if it results in a model that’s significantly more effective, especially considering that billions of users could benefit worldwide. Therefore, focusing on efficiency is essential, and American firms will similarly reach a point where they prioritize it. We can learn from certain approaches employed in China."
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Mark Mahaney, an internet research analyst at Evercore ISI, commented on CNBC that while Meta excels in public relations and expectations clarity, he believes Alphabet functions more like a "black box" regarding guidance and forecasts. Nonetheless, Mahaney prefers an investment in Alphabet Inc. (Nasdaq: GOOG) over Meta platforms.
He mentioned:
"Google often appears as a mystery. I appreciate their annual capital expenditure guidance, but it was an unusual figure that seemed to disappoint Wall Street. Additionally, their cloud numbers came in a bit underwhelming. I have a slight preference for Google."
After Alphabet Inc.’s recent quarterly results were released, the stock dropped, as the market reacted negatively to a projected $75 billion in capital expenses for 2025. Nevertheless, proponents of Goog suggest that these investments are intended for long-term gains. These expenditures are crucial for maintaining competitive research capabilities. The Gemini AI model benefits from Alphabet’s extensive ecosystem, which provides an easier transition for users compared to adopting entirely new applications like ChatGPT or Perplexity. Thus far, AI competition has not significantly impacted the company’s research revenue.
In the fourth quarter, Alphabet Inc. saw a 32% increase in operational margins, with YouTube advertising revenue climbing 14% and cloud revenue surging by 30.1%. The company also generated $12.8 billion in free cash flow, which is about 215% higher than the same period last year, despite hefty investments in AI. The stock is trading at a price-to-earnings ratio of 20.8x for 2026, making it roughly 22% cheaper than the average in its industry.
Merion Road Capital Management addressed Alphabet Inc. in their Q4 2024 investor letter, stating that they have held onto GOOG since 2018 due to its outstanding business quality and favorable valuation. The firm believes in Alphabet’s potential, noting:
"I remain optimistic about their short-, medium-, and long-term prospects. Google Cloud is growing quickly, and their latest model, Gemini 2.0, has made significant strides in enhancing user satisfaction and their overall product suite. As for Waymo, it is poised to become a valuable asset for the company."
Overall, Alphabet Inc. ranks 2nd on our list of crucial AI news. While we acknowledge its potential, we believe there are stocks with greater promise for higher returns within a shorter timeframe. For those seeking more promising stocks that trade at five times lower earnings, check out our report on the cheapest AI stocks.
For further reading, we have additional lists showcasing the 20 best AI stocks to buy now and a complete catalog of AI companies with a market cap of less than $2 billion.
Disclaimer: None. This article was initially published at Insider Monkey.