Despite consistently impressive growth numbers, Alphabet Inc (Nasdaq: GOOG, GOOGL) stock has traded mostly in line with the broader market over the past six months. Analysts say investors don’t appreciate Google’s growth opportunities and are undervaluing its business.
Rising costs have been one of the primary concerns for Alphabet investors in recent quarters, but Morgan Stanley analyst Brian Nowak says Google is making good use of those dollars.
[See: 7 of the Best Stocks to Buy for 2018.]
Nowak says the company is making tremendous strides with its artificial intelligence software, Google Assistant. Earlier this week at the I/O 2018 Conference, attendees were surprised by how natural a recorded phone conversation between Google Assistant and an unsuspecting human salon employee sounded.
Nowak said the Assistant phone call was just one of several impressive announcements and demonstrations Google made at the conference.
“GOOGL announced a new comprehensive/personalized Google News app, is materially expanding its Assistant functionality, is increasing its maps/local search personalization and is adding a suite of new search products to Google Lens,” Nowak says.
He says investors don’t seem to realize just how many growth avenues Google has at the moments. Nowak says Maps alone is a major opportunity for monetization. Google’s autonomous vehicles unit, Waymo, has logged 6 million driverless test miles and is reportedly on schedule to begin offering rides to the public in Arizona by the end of the year.
Nowak says Google’s Verily life sciences research organization is an opportunity as well.
“GOOGL also highlighted how it is applying [artificial intelligence and machine learning] to the health care industry, which over time could lead to a larger Verily,” Nowak says.
Surprisingly, even with all the opportunities Google has in front of it and the robust 26 percent revenue growth Alphabet reported in the first quarter, Bank of America analyst Justin Post estimates that the market is valuing Google’s core revenue business at only about 13 times estimated 2019 earnings.
[See: 9 Mature Tech Stocks to Buy for Dividends.]
“Increasing investments and negative usage/regulatory news cycles have impacted sector sentiment, but we think core stock valuations are not reflecting growth that far exceeds other consumer discretionary sectors,” Post says.
Morgan Stanley has an “outperform” rating and $1,200 price target for Alphabet. Bank of America has a “buy” rating and $1,360 target for GOOGL stock.
More from U.S. News
7 of the Best Socially Responsible Funds
8 Ways to Build a Low-Cost Portfolio for Social Change
8 of the Most Incredible Investments of the 21st Century
Don’t Worry About Rising Costs at Alphabet Inc (GOOG, GOOGL) originally appeared on usnews.com
