Alphabet’s sharp drop suggests it may be undervalued, with analysts predicting a 33% upside.
Despite AI challenges, Google’s strong performance and strategic AI investments highlight its ongoing market strength.
While Alphabet (NASDAQ:) faces competition from AI, lesser-known tech stocks, as identified by the Tech Titans strategy, may offer even greater opportunities.
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Shares of Alphabet (NASDAQ:), Google’s parent company, fell more than 7% on Wednesday. This was their biggest drop in weeks, bringing the stock to its lowest point since April 22. The sharp fall came as investors grew worried that Google’s main business is at risk from new AI tools like ChatGPT.
Experts have warned for a while that AI could challenge search engines, but the threat became clearer on Wednesday. Apple (NASDAQ:) said it plans to add AI-powered search features to its Safari browser.
This is a serious setback for Google. A large part of its ad revenue comes from iPhone users who use Google Search. Right now, Google is the default search engine on Safari — a position it pays Apple around $20 billion each year.
But Google is far from out of the game. It remains a major player in internet search, especially with its strong voice and visual search tools. The company is also making big moves in AI.
Google has been using its large cash reserves to fund AI development, making full use of its vast data resources. Earlier this year, it launched an “AI mode” on its search page to keep users engaged and stop them from switching to ChatGPT or other AI tools.
More recently, Google expanded its AI-generated summaries—short answers shown above regular search results—to over 100 countries. It also began placing ads in these summaries, helping to increase ad revenue from its search engine.
Alphabet Shares Turn Undervalued
It is also worth noting that Alphabet shares now appear undervalued after Wednesday’s sharp drop. According to InvestingPro’s Fair Value estimate—which combines several trusted valuation models—the stock is worth $182.99. That is about 21% higher than where it closed last night.
Source : InvestingPro
Analysts are even more optimistic, with an average target price of $201.92 for Alphabet’s stock, indicating a potential upside of over 33%.
Additionally, the company’s financial health is strong, as shown by its InvestingPro financial health score, which is well above average.
Source : InvestingPro
The ProTips, which simplify a company’s extensive financial data into a clear list of strengths and weaknesses, highlight numerous strengths and only a few weaknesses for Alphabet.
Source : InvestingPro
It is also important to note that the latest quarterly results were particularly strong, with EPS surpassing expectations by nearly 40%.
Source : InvestingPro
Although Google’s search engine business is under threat from AI, this has not yet impacted the company’s performance. Given this, yesterday’s sharp drop may have been overstated, presenting a potential buying opportunity.
However, many other U.S. technology stocks could currently offer better opportunities. After all, it’s often not the most well-known stocks that provide the biggest returns.
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Well, the Tech Titans strategy, available to InvestingPro subscribers, focuses on identifying high-potential US technology stocks that are not necessarily known to the general public (or not yet…).
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.
