Why Is Google Stock Going Up?

When Google lost an antitrust lawsuit last August, some analysts predicted that Alphabet’s stock price would suffer. In reality, investors didn’t really seem to notice, so the stock’s value kept hovering around $165 for the rest of the month.

It did have a bit of a slump at the end of Q3 but it’s been rising steadily since and even broke the $190 mark for the second time this year on December 11, reaching an all-time high slightly above $195 per share.

So, has Alphabet (NASDAQ:GOOG) hit a peak and ready for a tumble or is not a good time to step in and buy? Let’s look at recent events to learn more about how Google has positioned itself for short-term and long-term growth.

Alphabet Is Making Breakthroughs in Quantum AI

Google has invested billions of dollars into artificial intelligence over the last few years. While OpenAI and its ChatGPT product might get the most public attention, Google is the company really pushing AI’s technological boundaries. If that weren’t already obvious, it became undeniable earlier this month when Google Quantum AI announced that its Willow quantum chip had basically done something impossible.

Hartmut Neven, founder of Google Quantum AI, says the Willow chip is able to perform a standard benchmark calculation in under five minutes. If that doesn’t sound impressive, consider that the task would take the fastest supercomputers more time than the universe has existed (10 septillion years).

Better yet, Willow made fewer errors as they added qubits. This has been a key challenge in quantum computing because adding qubits correlates with lower errors.

So, why is Google stock going up? This announcement by the Google Quantum AI team of its Willow Chip performing a calculation in 5 minutes that would otherwise take 10 septillion years is fueling the current surge in GOOG’s price. It could be the key to overcoming many of the complications that have plagued AI’s success. Willow’s achievements secures Google as the leader in AI. And this isn’t about the type of AI that mimics human speech and scours the internet for answers. This is the kind of AI that could transform healthcare, transportation, and other critical industries.

Google Maintains Impressive Financials as It Increases AI Investments

Few companies can compare to Alphabet when it comes to maintaining impressive financials. Even as the company has devoted billions to AI research, it manages to remain profitable. According to Alphabet’s Q3 2024 report:

• Consolidated Alphabet revenues increased 15% year over year to $88.3 billion
• Revenues from Google Cloud services grew 35% to $11.4 billion
• Revenues from Google Services grew 13% to $76.5 billion

The Q3 2024 report also shows that Alphabet has $17.64 in free cash flow and $30.4 billion in net cash provided by operating activities ($13.06 billion after property and equipment purchases).

No matter how you look at it, Alphabet is growing and using its incoming cash to fund technologies that will fuel future growth.

Google Has Shown Exceptional Resilience During Downturns

On average, bear markets last 1,011 days, just shy of three years. That makes a lot of investors uneasy as the stock market enters a third year of continuous growth. For many, a downturn seems inevitable, but that’s not necessarily the case, especially since the global and U.S. economies are in uncharted territories. 

Alphabet is likely to hold up better than most if the market does a U-turn, just as it did in 2008 when Google held most of its value. Back then shares traded for about $14.20 before dipping below $10 for nearly the first half of 2009.  Thereafter they entered a prolonged period of growth starting in 2010. 

Google recovered much faster from the 2020-21 lockdown era that caused a market downturn in February of 2020. In early February, shares traded at about $75 per share before the price fell to about $53 on the 20th but almost immediately began a long climb that took the price above $140 per share a couple of years later.

One extraordinarily wide moat that keeps Alphabet protected is its dominance in so many areas, from video streaming to search, so even a pullback in spending isn’t particularly harmful to the company because it tends to hike prices annually.

Sundar Pichai has earned an A+ for diversifying Alphabet’s revenue streams. The majority of Alphabet’s money comes from Google Ads, but the company also generates income from Google Cloud, Google Play, app sales, YouTube Premium, and other sources. This level of diversification should help it weather a bear market that might happen in the coming year.

Should You Buy Alphabet Stock Now?

So, is now a good to buy Alphabet stock? When we ran a discounted cash flow forecast the upside potential was limited to $209 per share, suggesting about 10% upside. That’s right in line with where analysts consensus fair value lies.

Right now, GOOG has the hallmarks of being both an excellent place to protect money during a bear market and a way to park capital that is likely to steadily grow over time. Even if the price falls with the rest of the market, it will likely hold more of its value than other companies.

For the bulls, it’s also possible that the recent uptick is just the beginning for Google. Its quantum AI achievements are unprecedented, so it’s very difficult to assess accurately just how the company’s heavy investment will pay off in the coming years. The reality is over a long-term time horizon Google stands to become one of the most powerful companies in the world, if not the most powerful company in the world.

Given the company was the first to lead the AI revolution via DeepMind, it would be brave to bet against them further innovating and disrupting the world via quantum too.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.