Alphabet Wraps Up 2024 on a High Note, Driven by Advances in Quantum Technology

Alphabet is concluding 2024 on a positive note, driven by a significant breakthrough in quantum computing that has sparked a stock increase as the year draws to a close, despite lacking immediate commercial practicality.

Shares of Google’s parent company have soared over 30% since reaching a low in September, with much of that rise coming after announcements about the capabilities of its quantum computer, powered by the Willow chip. This advancement in quantum technology has fostered a hopeful narrative in light of concerns that Alphabet might be falling behind AI-focused rivals like OpenAI, as well as worries over antitrust issues, enabling the stock to reclaim its status as a leading performer among megacap companies. It currently ranks among the top 20 stocks in the Nasdaq 100 for the year.

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“Investor sentiment had turned negative as many began to view Alphabet as a legacy company trailing behind crucial industry advancements, but this breakthrough serves as a reminder that it still maintains its competitive edge,” said Michael Smith, a senior portfolio manager at Allspring Global Investments. “It highlights that Alphabet is abundant in intellectual property and a vital player in tomorrow’s technology.”



According to the company, the algorithm used to assess the quantum computer’s capabilities is not currently suitable for real-world application and is unlikely to produce revenue in the near future. However, the long-term outlook is seen as enormous, with Alphabet’s advancements enhancing the stock of other companies involved in similar technological efforts, such as Quantum Computing Inc, Rigetti Computing Inc, D-Wave Quantum Inc, and IonQ Inc.

Billions of dollars have been invested in quantum computing by governments, tech firms, and venture capitalists, due to its processing power that significantly surpasses that of classical computing. Analysts at Bank of America have pointed out numerous potential applications for this technology, including drug discovery, advanced materials engineering, and next-generation encryption solutions.

“Quantum innovation could establish a substantial technological advantage for Alphabet,” despite the commercial applications being years away, wrote Bank of America analyst Justin Post. He noted that Alphabet’s “history of successfully monetizing next-gen technologies” is undervalued in the current market.

Alphabet shares are trading at about 21 times projected earnings, which is lower than the Nasdaq 100’s 27-fold multiple. Additionally, it holds the lowest valuation multiple among the Magnificent Seven stocks.

Antitrust challenges have put pressure on the stock since a ruling in August concluded that Google had illegally monopolized the search market. The U.S. Justice Department has proposed a forced sale of the Chrome web browser and has sought to dissolve a partnership with AI startup Anthropic—measures seen as more severe than expected. While the eventual consequences remain uncertain, President-elect Donald Trump’s appointments for antitrust positions are anticipated to continue a strong stance against large tech corporations.

Nonetheless, some investors believe that the current valuation properly reflects the existing regulatory risks, especially in light of the company’s latest financial results, which showcased solid fundamentals beyond these challenges.

“We would view any volatility associated with antitrust concerns as a buying opportunity, as the company continues to showcase robust growth prospects,” remarked Hanna Howard, a portfolio manager at Gabelli Funds. “Alphabet is consistently innovating, and we expect returns from the investments it has made.”

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Kevin Walkush, a portfolio manager at Jensen Investment Management, shares an optimistic viewpoint as well. He values Alphabet’s dominant position in the AI space, with quantum computing adding more optionality.

“From a valuation perspective, this isn’t a huge shift,” Walkush stated. “However, there is considerable potential associated with quantum, though it remains distant from delivering value, making the likelihood of success appear low at the moment.”

Tech chart of the day



Meta Platforms Inc shares have surged by 75% this year, pushing its market cap to a record $1.6 trillion, as Mark Zuckerberg has repositioned the social media giant as a frontrunner in AI advancements. In addition, Tesla Inc, led by Elon Musk, is not far behind, enjoying a 93% increase year-to-date, which raises its market value to $1.5 trillion. The electric vehicle manufacturer has benefited from Musk’s close ties with President-elect Donald Trump and stronger-than-expected financial outcomes.

© 2024 Bloomberg

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