The company just announced a big win with Snap.
Alphabet (GOOGL 0.75%) (GOOG 0.89%)’s efforts in artificial intelligence (AI) haven’t always gotten the best press. Technology and business website The Information recently published an article saying that the company’s Gemini AI is too difficult for app developers and businesses to use compared to competitors’ AIs such as OpenAi.
However, within days of that article, the company announced several Gemini wins. Let’s take a look at these and what they mean for the stock.
Gemini gains momentum
The company’s first big AI win comes with Snap, which will incorporate Alphabet’s Gemini AI model into its Snapchat My AI chatbot. Snap launched its My AI chatbot last year using OpenAI’s generative AI model, but earlier this year it began incorporating Gemini into its chatbots for its ability to process video, audio, and text simultaneously. Ta.
Snap CEO Evan Spiegel said the company’s vision is hampered by the company’s chatbot’s inability to quickly process videos and images. This is the main way Snapchat users communicate with each other. He said that since incorporating Gemini into My AI, there has been a 2.5x increase in user engagement sending photos and videos to the chatbot.
Snap also said it is considering incorporating Gemini into its recently introduced Spectacles smart glasses.
Additionally, Warner Bros. Discovery will begin using Gemini to generate captions for unscripted programming on its Max streaming service. The media company says Gemini cuts captioning costs in half and reduces turnaround time by 80%. The caption project was developed using Google’s Vertex AI platform.
Alphabet also announced that Volkswagen will partner with it on a new AI smartphone assistant. It was created by incorporating vehicle maintenance data from Volkswagen owner’s manuals and YouTube videos into Gemini.
The idea is to allow VW owners to ask questions such as how to change a flat tire and get relevant information by pointing their phone at their car’s dashboard. The new AI assistant will first be available on Atlas SUV models before being rolled out to other models.
Alphabet also announced a number of other new and expanded deals for AI Gemini with companies such as Best Buy, Scotts Miracle-Gro, Telecom Italia, and UPS Capital.
Image source: Getty Images.
Is it time to buy Alphabet stock?
Considering the questions surrounding Gemini, these are great wins for Alphabet. The deal with Snap is particularly large because the social media company was already using OpenAI but chose to incorporate Gemini, which has the ability to process multiple types of data other than text.
The deal also helps dispel the perception that the company lags far behind OpenAI in AI models. Indeed, Snap’s decision shows that OpenAI appears to be trailing Gemini in several key areas of video and image processing.
At the same time, Alphabet’s Google Cloud division is also benefiting from AI, with customers building AI capabilities on top of its infrastructure. The cloud division’s revenue rose 29% last quarter to $10.2 billion, and operating income jumped from $395 million to $1.17 billion as the division gained significant scale.
The company also remains an unprecedented leader in search, and it’s highly unlikely that will change. In a recent antitrust case between the US and Google, Apple leadership said that given Bing’s inferior quality, Microsoft could pay to switch from using Google as its default search engine. He said there was no amount available.
On the other hand, new AI search startups like Perplexity and SearchGPT have no user base and therefore no ability to effectively monetize advertising, which will only drain them of money over a very long period of time.
And the new ad format opens up the opportunity for Alphabet to monetize the 80% of search traffic it currently doesn’t serve ads through AI. This is a huge opportunity for the company, and one that has been missed by many critics who look at the stock and think AI could be more of a risk than an opportunity.
With the stock coming off its highs, Alphabet is now trading at a very attractive valuation, trading at 18x forward earnings, based on next year’s analyst forecasts and P/E. (PEG) less than 0.7. Generally, stocks with a PEG below 1 are considered undervalued, and by that metric Alphabet appears to be among the bargains.
GOOGL PER (next year); data by YCharts.
If Gemini continues to gain momentum and the stock is this cheap, I would buy Alphabet at current levels.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Geoffrey Seiler has held positions at Alphabet and Warner Bros. Discovery. The Motley Fool has positions in and recommends Alphabet, Apple, Best Buy, Microsoft, Scotts Miracle-Gro, Volkswagen, and Warner Bros. Discovery. The Motley Fool recommends United Parcel Service and Volkswagen Ag and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
