The company will announce its 2024 third quarter earnings after the session today. Since the beginning of the year, the stock has been performing below the Nasdaq 100 (+21%), S&P 500 (+21.8%) & Magnificent Seven index (+47.8%) with an 18.9% premium. One reason for this negative divergence is that “generative artificial intelligence” models pose a risk to the “search engine” business model in the future. However, Google is very active in Artificial Intelligence investments, both in-house and through its own VC (Venture Capital) funds. It also keeps the company that made its mark on Nobel laureates this year (Deepmind) under its roof. (2024 Nobel Prize in Chemistry)
According to the news of The Information, which is seen as an important news source in the technology world, it is said that the Jarvis project (Yes, Tony Stark's Jarvis) may be introduced in December. Therefore, we have serious questions about how much the feared scenario for Google will come true. A structure where both search engine and generative artificial intelligence services are offered together and has a clear data advantage can take Google to much better places. We expect good figures from the names operating in the digital advertising market in the third quarter balance sheets. Google is also the market leader in the digital advertising market in the USA. If there is no setback on the international side, the third quarter turnover figure will be announced above expectations. GOOG has been continuing its double-digit turnover growth on its balance sheet since the second quarter of 2023.
It is the cheapest name among the magnificent seven stocks in terms of multipliers. Its 12-month expected P/E (Price Earnings) ratio is also below the 5-year median. The 5-year median is 20.9x and its 12-month expected P/E is 18.7x
In summary; Its lagging behind in stock performance and relatively cheap multipliers
Its weight in the digital advertising market and my belief that this area will do well in the third quarter balance sheets, the chance to turn the generative artificial intelligence risks “in its favor” with the Jarvis project are the reasons why I like the stock.
If things go as planned, we will see a close above the 100-Day Moving Average after the balance sheet. There may be pricing in the $175-$178 range on Wednesday. The market will struggle to fill the $178-$183 gap for the rest of the week.
Risk factors: “Split” lawsuits filed against the company due to market share and the US elections.
Comment: The first one is not very realistic in our opinion. After all, a service is provided “for free” for the benefit of the user. Yes, there is a monopoly aspect, but I think the split risks are exaggerated at this stage. The US elections are important not only for GOOG but for the market as a whole.
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