Alphabet Inc. (GOOG, GOOGL), the parent company of Google, has seen its stock surge by over 30% from its $148.80 September low, largely fueled by a significant quantum computing breakthrough despite its lack of immediate commercial applications. The company’s Willow chip has demonstrated remarkable capabilities, solving in five minutes a problem that would take one of the world’s fastest supercomputers an astonishing septillion years. This breakthrough offers a much-needed boost for Alphabet, which faces concerns about lagging behind competitors like OpenAI in AI development and grapples with ongoing antitrust challenges.
The quantum computing development has not only bolstered Alphabet’s stock price but also reignited investor confidence in the tech giant. Michael Smith, a senior portfolio manager at Allspring Global Investments, told Bloomberg that this breakthrough reassures investors of Alphabet’s ongoing innovation and intellectual property strength, countering the narrative of it being a legacy company outpaced by newer tech advancements.
While the specific algorithm tested on the quantum computer does not yet have practical use, the long-term implications are considered extensive. The field of quantum computing, with its potential to outstrip classical computing power by millions of times, has drawn significant investment from governments, tech companies, and venture capitalists alike. Alphabet’s advancements have had a ripple effect, boosting shares of other quantum computing firms like Quantum Computing Inc. (QUBT), Rigetti Computing Inc. (RGTI), D-Wave Quantum Inc. (QBTS), and IonQ Inc. (IONQ).
Bank of America (BAC) analyst Justin Post pointed out the vast potential of quantum computing in creating a significant technological advantage for Alphabet, even if commercial benefits are years away. He noted Alphabet’s history of monetizing new technologies effectively, suggesting that this aspect is undervalued in the current stock pricing. Alphabet trades at forward P/E of about 22x estimated earnings, which is lower than the Nasdaq 100 (NDX) average and among the lowest of the so-called “Magnificent Seven” tech stocks.
However, the shadow of antitrust issues, particularly after a ruling that Google monopolized the search market, has been a persistent concern for investors. The U.S. Justice Department’s aggressive steps against Google, including proposing the divestiture of Chrome and challenging partnerships like that with AI startup Anthropic, have introduced volatility. Yet, the anticipation of continued regulatory scrutiny under a Trump administration adds another layer of uncertainty.
Despite these challenges, some investors see the current valuation as already accounting for these risks, focusing instead on Alphabet’s robust fundamentals and growth potential. Hanna Howard from Gabelli Funds told Bloomberg that any dip due to antitrust news should be viewed as a buying opportunity, emphasizing Alphabet’s ongoing innovation and the potential for returns from its substantial R&D investments. Similarly, Kevin Walkush from Jensen Investment Management says he appreciates Alphabet’s position in AI and sees quantum computing as adding strategic optionality, although not immediately impactful on valuation due to its nascent stage.
In summary, Alphabet’s late 2024 surge, driven by quantum computing news, has not only revitalized its stock performance but also highlighted its role in shaping future technology landscapes, even as it navigates through significant regulatory and competitive challenges.
Price Action: As of the latest market data, shares of GOOGL are exchanging hands at $195.72, reflecting a modest increase of $0.30 or 0.15% during intraday trading. Year-to-date, the tech giant has enjoyed a solid 40% gain.
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Reference: Bloomberg
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