Gemini AI is gaining traction. Is it time to buy Alphabet stock?

ABC (GOOGL 0.75%) (GOOG 0.89%) Artificial intelligence (AI) efforts have not always received the best press. Technology and business website The Information recently published an article about how the company’s Gemini AI was too difficult for app developers and companies to use compared to that of rivals such as OpenAi.

However, within days of that article, the company announced more Gemini earnings. Let’s take a look at these and what they could mean for the stock.

Gemini gains momentum

The first big AI win for the company was with Snapwhich will incorporate Alphabet’s Gemini AI model into its Snapchat My AI chatbot. Snap launched its My AI chatbot last year using generative AI models from OpenAI, but began incorporating Gemini into its chatbot earlier this year due to its ability to process video, audio and text simultaneously.

Snap CEO Evan Spiegel said his chatbot’s inability to quickly process video and images is hindering its vision because that’s the main way Snapchat users communicate with each other. He said that since incorporating Gemini into My AI, he has seen 2.5x more engagement from users sending photos and videos to the chatbot.

Snap also said it is considering including Gemini in its recently introduced Spectacles smart glasses.

In addition, The discovery of Warner Bros will now begin using Gemini to generate captions for unscripted programming on its Max streaming service. The media company says Gemini will cut its subtitling costs in half while taking 80 percent less time. The subtitle project was developed using the Google Vertex AI platform.

Alphabet announced this as well Volkswagen will collaborate with the company on a new AI smartphone assistant. It was created by incorporating vehicle maintenance data from Volkswagen owner manuals and YouTube videos into Gemini.

The goal is to allow VW owners to ask questions like how to change a flat tire and point their phones at the vehicle’s dashboard to get relevant information. The new AI assistant will initially be available for Atlas SUV models, before being rolled out to other models.

Alphabet also announced a number of other new and expanded AI Gemini offerings with companies such as Best Buy, Scotts Miracle-GroTelecom Italia, UPS Capital and others.

Image source: Getty Images.

Is it time to buy Alphabet stock?

Given the questions surrounding Gemini, these are some nice wins for Alphabet. In particular, Snap’s business is big because the social media company was already using OpenAI, but chose to incorporate Gemini for its ability to process more types of data beyond text.

The deal also helps dispel the notion that the company is heavily following OpenAI with its AI models. In fact, Snap’s decision shows that OpenAI appears to be following Gemini in some key areas of video and image processing.

At the same time, Alphabet’s Google Cloud division has also been a beneficiary of AI, with customers building AI capabilities on top of its infrastructure. The cloud segment grew revenue 29% last quarter to $10.2 billion, while operating income rose from $395 million to $1.17 billion as the division earns a critical scale.

The company also remains the unprecedented leader in search, and this is highly unlikely to change. In the recent antitrust lawsuit between the US and Google, Apple management said there was no amount of money Microsoft it might pay to switch from using Google as your default search engine given the inferior quality of Bing.

Meanwhile, new AI search startups like Perplexity and SearchGPT don’t have the number of users and thus the ability to effectively monetize ads and will only lose money for a very long time.

And with new ad formats, AI gives Alphabet an opportunity to monetize the 80 percent of its search traffic that it doesn’t currently serve ads for. This is a big chance for the company, and one that many critics are missing when they look at the stock and think that AI might be more of a risk than an opportunity.

Given the stock’s highs, Alphabet now trades at a very attractive valuation, with a forward price-to-earnings (P/E) ratio of 18 based on next-year analyst estimates and a price-to-earnings-growth ( PEG ) ratio of below 0.7. Generally, a stock with a PEG below 1 is considered undervalued, so by this measure, Alphabet appears to be in the bargain bin.

GOOGL PE ratio (forward 1 year); data by YCharts.

With Gemini gaining momentum and the stock so cheap, I’d be a buyer of Alphabet at current levels.