Key Morningstar Metrics for Alphabet
- : USD 433Fair Value Estimate
- : ★★★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
Alphabet GOOGL shares slid more than 5% over the last week after two senior artificial intelligence researchers, John Jumper and Noam Shazeer, decided to leave the company to join Anthropic and OpenAI, respectively.
Why it matters: Jumper won the Nobel Prize alongside Demis Hassabis for his work on AlphaFold and Shazeer was one of the original authors of the 2017 seminal Transformers paper. Losing both to competitors has worried investors that Alphabet’s AI strategy may be lagging.
- We’d reposition investor attention to Alphabet’s advantages in AI that persist even with these departures. The firm has an integrated AI stack from energy (Intersect acquisition), chips (in-house TPUs), infrastructure (Google Cloud), models (Gemini), all the way to apps (Search, YouTube).
- We see each part of the stack as offering Alphabet an opportunity to either save costs or drive revenue for the firm, setting up strong growth and earnings power in periods to come.
The bottom line: We reiterate our USD 433 fair value estimate for wide-moat Alphabet. With shares trading down, they now trade in 4-star territory. We see current valuations as attractive for investors looking for high-quality AI exposure.
- Of note for investors is that Alphabet’s continued partnership with Anthropic offers the firm an opportunity to derisk its model-layer bet away from Gemini, allowing it to scale revenue while reserving its research priorities for longer-term bets such as robotics and fusion.
Big picture: We also see a difference in timescales at play here. Anthropic, much like OpenAI, needs to deliver sales today as it seeks to increase its inference share of compute and deliver sales on its existing models.
- Alphabet, on the other hand, can sell compute to Anthropic while using its remaining capacity to keep Gemini competitive, mostly in service of its advertising business, and focusing on longer-term bets that will pay off in years, not months, with asymmetric returns if successful.
