Google’s Stock and AI: Massive Tailwind, or Dangerous Frenzy?
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We’re all familiar with Google—now known as Alphabet Inc. (GOOGL)—for its search engine, its email platform, and a video company it owns (YouTube ring a bell?). But increasingly, this tech behemoth is being talked about with respect to artificial intelligence. All this excitement extends to investors, who may now be considering Google’s stock as a play on the potential AI boom. So is AI-mania a reason to buy GOOGL, or should bears bet that this is a castle built on sand that’s about to be wiped out?
Source: StockCharts.com, May 24, 2023.
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Truth be told, it’s a bit complicated. For the moment, GOOGL makes most of its money from technology that compared to AI seems practically prehistoric. We’re talking ad revenues and cloud computing services, mainly. We believe AI’s influence on the stock will come down to future growth expectations, at least for the time being.
Here are some catalysts traders may want to watch for which could make or break GOOGL:
- Can Other AI Stocks Maintain Momentum? Booms take most companies in a sector along for the ride, and AI is no different. For example, Nvidia shares soared after the company’s quarterly results1 topped expectations and the chipmaker sounded a bullish tone on the future of AI. “The computer industry is going through two simultaneous transitions — accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA. “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.” GOOGL is one of the companies that could benefit from more advanced chips to help power its AI efforts.
- More Disclosure from the Company About its AI technology. Google has been very guarded about what it publicly reveals when it comes to the AI tech it’s developing. On the one hand that helps the company protect its intellectual property but it also may be hindering their stock price. Investors need reasons to be optimistic about Google and AI, and more disclosure about its large language learning model (PaLM 2) could help.
- How is Bard Fairing Against ChatGPT? Let’s face it, when most people think of AI these days the first thing that comes to mind is Microsoft-backed ChatGPT. Bard is Google’s answer to ChatGPT and investors may choose to keep a close eye on who seems to be winning the race among web users. What’s one fitting way to monitor this, besides stories in the media? Google Trends!
How to Play GOOGL and AI
Bulls who think AI can power Google stock can attempt to turbocharge gains with the Direxion Daily GOOGL Bull 1.5X Shares (NASDAQ: GGLL). This ETF seeks daily investment results, before fees and expenses, of 150% of the daily performance of the class A shares of Alphabet Inc. Meanwhile, bears who think AI is just another bubble can attempt to profit from declines using the Direxion Daily GOOGL Bear 1X Shares (NASDAQ: GGLS). This ETF seeks daily investment results, before fees and expenses that are 100% of the inverse (or opposite) of the performance of the class A shares of Alphabet Inc.
With any boom there are two possible reactions from investors. The first is to believe that the hype is real and all the upward momentum is supported by the fundamentals. Then there’s the second take, which is to say the boom is just a bubble that will eventually burst. For traders, though, money can potentially still be made even if it just turns out to have been a castle built on sand.
1https://investor.nvidia.com/news/press-release-details/2023/NVIDIA-Announces-Financial-Results-for-First-Quarter-Fiscal-2024/default.aspx
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