- Google is well-positioned to capitalize on the AI boom.
- Its fundamental position has been improving quarter on quarter.
- Technically, the stock is well-positioned for further gains.
As we’ve noted this week, shares of Apple (NASDAQ:AAPL) have just returned to fresh all-time highs, while those of Meta Platforms (NASDAQ:META) are also soaring this year. But they’re not the only tech titans to be giving tech investors something to cheer about. Alphabet (NASDAQ:GOOGL), better known as Google, has also had a decent start to the year, and momentum is building.
Their shares have rallied almost 50% since the first week of January, and since the end of April, they’ve actually outperformed those of Apple and Meta. There’s a solid argument to be made that Google shares hold the most promise out of the three to be the summer’s top tech titan. Let’s look at 3 of the more potent reasons behind this.
Artificial Intelligence
First up is AI, the latest market buzzword that’s been on everyone’s lips since NVIDIA (NASDAQ:NVDA) earnings last month. Wall Street is going crazy for any stock that is AI related, and when it comes to Google, AI feels like a very natural next step for products like Google Search and Google Cloud. In fact, there have been developments in this direction underway since last year, but Nvidia being catapulted to market leader has forced companies like Google to accelerate their timelines aggressively.
This resulted in Google launching their AI chatbot Bard in March, which rounded out their strategy to have both AI software and AI hardware in the market. The latter has been underway for some time as Google explores ways to reduce its dependence on Nvidia’s GPUs and related software by creating its own.
This means Google could soon be fully pivoting away from actually being an Nvidia customer to both manufacturing its own AI hardware and software and commercializing it. There are risks here, to be sure, with increased R&D costs and the knock-on effect this would have on margins, just one of them, but the opportunity surely justifies it.
Strengthening Fundamentals
While AI might be what everyone is talking about this summer, the meat and potatoes of any stock are its fundamentals. In that regard, Google is red hot. Its Q1 earnings report smashed analyst expectations and delivered record revenue for the first quarter along with its highest EPS of the past three quarters.
Considering how exposed Google has been to any decelerating economic activity, we’re inclined to think it has weathered the worst of it and has come out the other side. For context, their shares endured a 45% fall from April last year through October, but the bears ran out of steam there. It’s been effectively one-way traffic since then as buyers have rewarded strengthening fundamentals and an improving outlook.
Also of note is management’s latest buyback announcement, with an additional $70 billion worth of its stock set to be repurchased. A stock buyback is one of the most explicit ways management can tell the market that they believe their stock is trading well below fair value. And in putting their money where their mouth is, they give many investors the confidence to also do the same.
Technical Setup
Last but not least, we have Google’s technical setup. Looking at its chart, we can see the current rally has been supported by a series of higher lows and higher highs, the textbook pattern you want to see when deciding if a long-term uptrend is underway. And the best news? Google stock can’t even be called overbought at its current level, with the RSI a bullish 60.
Shares have been trading above their 50-day moving average since March and their 200-day moving average since the start of April. Factor in the AI angle mentioned above, along with the strong fundamentals, and we could well be looking at a multi-month, if not multi-year, rally in its infancy.