Alphabet shares had their best growth in 20 years. Is it worth buying them now?

Alphabet's shares showed the largest quarterly growth in 20 years amid strengthening of the company's position in the field of artificial intelligence. Investors' optimism was supported by a favorable decision on the antitrust case and strong results of the technology giant. As a result of the rally, Alphabet's capitalization temporarily exceeded $3 trillion. Analysts note that the company may become the main beneficiary of the generative AI era and retains the potential for further growth.

Alphabet shares ended the quarter with the strongest growth in 20 years, reflecting increasing investor optimism about parent company Google thanks to its success in artificial intelligence, Bloomberg writes.

Class A securities have gained 38% in three months, the best result since mid-2005. Since the beginning of the year, they are up nearly 30%, while the Nasdaq 100 Index is up 17%. Class C stocks, which emerged in 2014, are up 37% and had their strongest quarter in trading history.

As a result, Alphabet was among the leaders of the "Magnificent Seven," second only to Nvidia in terms of momentum. That's an impressive reversal after April, when its stock was down 24% YTD, MarketWatch notes. The company's capitalization briefly rose above the $3 trillion mark in mid-September; it now stands at about $2.94 trillion, MarketWatch shows .

On the premarket on October 1, Alphabet's quotes fell by 0.8%.

The stock's rise was attributed to the long-awaited ruling in the antitrust case against Google, which did not include the toughest measures proposed by regulators. The company will not have to sell its popular Chrome browser, which plays an important role in its advertising business.

The decision was made after the publication of Alphabet's second-quarter earnings report, which showed that demand for artificial intelligence products is supporting the tech giant's sales, Bloomberg writes.

Investors now have more confidence in Alphabet's AI position, even as OpenAI continues to offer new features in ChatGPT. Alphabet is actively incorporating AI into search through AI Mode, ramping up its use of Gemini and betting on multimodal search with its Nano Banana image editor. On Tuesday, the company announced the launch of AI Mode visual search. Last week, The Information reported that Meta Platforms had discussed using Alphabet's AI models to improve its advertising business, but Meta itself denied this.

"The combination of market leadership, diversification and scale makes Alphabet not only a winner in the age of generative AI, but also a company that could well claim the title of the world's most valuable company," according to analysts at MoffettNathanson, quoted by Bloomberg. They last week reiterated a buy recommendation on Alphabet shares and raised their target price to $295, which implies a 21% upside.

Mizuho analyst Lloyd Walmsley initiated coverage of Alphabet on Tuesday, September 30 with a "buy" recommendation and a similar $295 target, noting strong growth in the company's advertising and cloud businesses. In his assessment, Google is in the best position to monetize AI in the advertising business due to its Performance Max product - a Google Ads tool that uses AI to optimize campaigns across all services - as well as its vast amount of user data and unique distribution channels. The analysts believe that YouTube also represents a promising source of monetization, where AI can improve user experience and increase the relevance of ads.

The Google Cloud division, according to Walmsley, will benefit from an increase in AI workloads, especially as demand for the use of inference and query models grows in the coming years. Although the final leaders in the AI race will not be determined this quarter or even next quarter, says the Mizuho analyst, in the case of Alphabet, the pendulum is already shifting from "loser in the age of generative AI" to "winner".

An analyst at Wolfe Research raised his target price on the company's shares to $290 on September 30. His benchmark is 19.3% higher than the last closing price.

The average Wall Street target, however, corresponds to the current value of Alphabet shares, follows from the data of MarketWatch. At the same time, the majority of analysts recommend these securities to buy: 59 out of 72.

This article was AI-translated and verified by a human editor