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In this video, I will be talking about Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and why the current weakness in the stock might turn out the be a great opportunity for long-term investors, despite Microsoft's push in Search.
A major shot was fired across the bow this week when Microsoft (NASDAQ: MSFT) announced it would be integrating Open AI's revolutionary artificial intelligence (AI) chatbot into its Bing search engine. In response, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) -- parent company of Goog
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Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are the second-, third-, and fourth-largest companies on the U.S. markets today. These tech giants have their niches, but they all compete in one massive industry: cloud computing.Each co
I used to know some guys who met before the beginning of each college football season. They would predict how their respective teams' seasons would likely go.
Microsoft-backed OpenAI has kept its hit ChatGPT app off-limits to users in China, but the app is attracting huge interest in the country, with firms rushing to integrate the technology into their products and launch rival solutions.
The boss of Google's search engine warned against the pitfalls of artificial intelligence in chatbots in a newspaper interview published on Saturday, as Google parent company Alphabet battles to compete with blockbuster app ChatGPT.
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On November 30, 2022, ChatGPT took the world by storm.
Built by San Francisco-based OpenAI, a
Microsoft (
NASDAQ:MSFT
)-backed startup, ChatGPT has attracted Internet users looking for straight answers to their questions -- rather than a series of suggested links. It's delighted students, too, who've used the new AI chatbot to turn a one-line prompt into an original 2,500-word term paper. And… it's lit a fire under Microsoft rival
Alphabet (
NASDAQ:GOOG
), which is now under pressure to come up with an alternative product or risk becoming irrelevant.
On Wednesday, Google announced version 1.0 of its response, a chatbot of its own named "Bard." The initial demo didn't go well, however, with Bard responding to an inquiry by (wrongly) asserting that the James Webb Space Telescope was the first telescope to photograph a planet outside of our solar system (In fact, a Chilean telescope was first).
Oops.
More than just an embarrassment, that mistake seems to have sparked a selloff in Alphabet stock, as investors absorbed the implication that Alphabet -- believed to be a leader in AI -- is subject to the same limitations that others have pointed out in ChatGPT.
Can Alphabet recover from its fumble, though? This is the question that Goldman Sachs analyst Eric Sheridan tackled in a wide-ranging note covering Alphabet's various artificial intelligence and machine learning initiatives.
The "AI arms race," argues Sheridan, will be "the dominant investing theme" among tech stocks for at least the next few months as Microsoft and Alphabet -- and
Amazon (
NASDAQ:AMZN
),
Meta (
NASDAQ:FB
),
Apple (
NASDAQ:AAPL
),
Baidu (
NASDAQ:BIDU
), and
Alibaba (
NYSE:BABA
), too -- all vie for supremacy in this space, and throw "tens of billions of dollars" into the effort to build increasingly better AI mousetraps. Which company will emerge victorious -- Sheridan doesn't even try to guess, admitting it's simply too "difficult to forecast." But one thing the analyst does think certain:
Whoever wins, and regardless of whether the winner is single, or whether multiple platforms end up with a piece of the AI market, the cost of this effort will take a toll on Alphabet in the short term.
Proceeding from an estimate that Alphabet has already spent anywhere from $27 billion to $137 billion on AI research to date, and guessing at what it might have to spend to keep up with the AI arms race in future years, Sheridan warns that investors can expect Alphabet's gross profit margin to shrink by somewhere between 60 basis points and 230 basis points over the next couple years.
True, Alphabet regularly rakes in gross profit margins of 55% and up today, so even a full two percentage-point decline will hardly kill the business. But it might hurt. Additionally, there's the risk to market share -- and the revenues those gross margins are applied to. As Microsoft has observed, it's currently really a runner-up in internet search, so all Microsoft really has to do with its Bing-ChatGPT partnership is add a few customers and steal a few points of market share from Google -- and it will come out of this a winner.
As the dominant player in search and search advertising, however, Alphabet must run simply to stay in place. This makes AI less of an opportunity for Alphabet, and more of a costly necessity. For this reason, it's curious that after outlining all the risks,
Overall, however, Sheridan comes to the conclusion that Alphabet stock is a "buy" and worth 31% more than it costs today -- $124.60 a share. (See Sheridan's track record,
click here)
Alphabet is that rare beast - a stock with plenty of coverage where everyone is in agreement. It has garnered 32 analyst reviews over the past 3 months – all Buys – naturally making the consensus view here a Strong Buy. The average target currently stands at $129.34, implying the shares will deliver returns of ~37% over the one-year timeframe. (See
GOOGL stock forecast
)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’
Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer
: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Conversational
artificial intelligence (AI) stocks are hot, while
electric vehicle (EV) stocks are just starting to show signs of life in 2023 after a poor performance last year. You're certainly welcome to invest in both of these markets, but contrarian investors might choose to allocate more of their capital into EV stocks than conversational AI stocks now.
Don't get me wrong - both machine learning and vehicle electrification are future-facing trends with tremendous growth potential. However, cautious investors should think about which niche market's rapid expansion potential has already been priced into stocks. So, let's start by taking a closer look at a few conversational AI stocks to see how much growth has already been baked into the proverbial pie.
Conversational AI Stocks: The Pure-Play Ones are Pricey
Many people first heard about conversational AI because they saw OpenAI's ChatGPT chatbot being mentioned in the headlines. Microsoft (
NASDAQ:MSFT
) is investing $10 billion in OpenAI and its
ChatGPT conversational AI software, while Google parent company Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
) is pushing back with Bard, another conversational AI chatbot.
However, these certainly aren't pure plays in the conversational AI space. There's a lot more to Microsoft than ChatGPT, and Alphabet has its hands in many more niche industries than conversational machine learning.
If you really want to go all-in on conversational AI, you might think about C3.ai (
NYSE:AI
), which recently launched a suite of generative AI tools. Others in this specific market to consider are SoundHound AI (
NASDAQ:SOUN
), which introduced a conversational AI platform called Dynamic Interaction, and BigBear.ai Holdings (
NYSE:BBAI
), which has a contract with the U.S. Air Force.
However, I would cross BigBear.ai off of the list because the company seems to be much more focused on cybersecurity-related machine learning than conversational AI. Still, the bigger issue is that the pure-play stocks -
AI,
SOUN, and
BBAI - all have gone parabolic in 2023 so far. I'm talking about gains in the hundreds of percentage points in a matter of weeks. If you're a true contrarian, then the charts of these stocks should make you think twice about jumping into the trade now.
If I had to choose a conversational AI stock right now, it would probably be C3.ai because it's a bigger and more established pure-play machine learning business than SoundHound AI and BigBear.ai. So, let's see what analysts have to say about C3.ai stock.
What is the Price Target for C3.ai Stock?
AI has a Hold consensus rating based on two Buys, two Holds, and three Sell ratings assigned in the past three months. The average
C3.ai stock price target of $16.50 implies 26.5% downside potential.
EV Stocks are Way Down but Curling for a Comeback
Unlike pure-play conversational AI stocks, EV stocks are generally far below their prior peak prices. The most obvious example would be Tesla (
NASDAQ:TSLA
) stock, which topped out above $400 but is now close to $200.
TSLA's stock chart is exactly what value investors should look for -- a major discount to the previous high price, but also not a falling knife as the buyers recently stepped in to push the stock back up.
You'll see a similar shape in Ford's (
NYSE:F
)
stock chart as well as General Motors' (
NYSE:GM
)
stock chart. Ford and GM aren't pure plays in the EV industry quite yet, but they're heading in that direction. It shouldn't be too surprising if both of these automotive giants release new and upgraded EVs this year.
Still, Tesla is the purest of pure plays in EV manufacturing, and TSLA stock didn't go vertical like the conversational AI stocks did. Moreover, Tesla stock has plenty of Buy ratings on Wall Street, so let's delve into the analyst consensus on Tesla now.
What is the Price Target for Tesla Stock?
On Wall Street, TSLA has a Moderate Buy consensus rating based on 21 Buys, six Holds, and three Sell ratings assigned in the past three months. The average
Tesla stock price target of $198.85 implies 1.8% upside potential.
Conclusion: EV Stocks Aren't as Overbought as Conversational AI Stocks
There's nothing wrong with owning shares of both conversational AI stocks and EV stocks. These two industries have room to expand in 2023 and beyond.
If you truly believe in "buy low, sell high," however, then you might choose to allocate more to EV stocks than conversational AI stocks. Then, be watchful and nimble: If the tides turn and EV stocks reach new highs while conversational AI stocks decline, it's possible to reallocate as a response to any share-price shifts that may occur.
Disclosure
The popularity of ChatGPT is an indication of how much consumers want AI products and services. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) are in a great position to benefit from the tailwind.
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