Certainly! Here’s the article rewritten in the third person, maintaining a neutral, professional tone and retaining the original context:
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By examining the broader picture, it is clear that Alphabet (GOOGL, GOOG) has proven to be a substantial success for investors. Over the past five years, its shares have increased by 144%, and in the last decade, they have surged by 525%. Alphabet’s emergence as a leading internet entity has greatly benefited its shareholders.
However, as of May 28, the stock is trading 16% below its peak reached on February 4. This situation raises the question of whether investors should capitalize on market pessimism and purchase Alphabet shares at a lower price.
### Is AI a Risk or an Opportunity?
The rise of generative artificial intelligence (AI) tools has raised concerns among investors regarding Alphabet’s flagship product, Google Search, which accounted for 56% of sales in the first quarter. The worry is that users might increasingly rely on AI for information, potentially diverting traffic away from Google Search and affecting advertising revenue.
These concerns, however, seem overstated. Google Search continues to hold a commanding 90% share of the global market for search engines. Additionally, its revenue increased by 10% year over year in the first quarter, reaching $50.7 billion, which marks a 28% rise from the same period three years ago.
Alphabet is not complacent regarding AI. At its annual Google I/O developer conference in May, the company announced 100 updates, introducing new AI features across various platforms. Alphabet is already monetizing AI, with Chief Business Officer Philipp Schindler noting similar monetization rates for AI Overviews compared to traditional search.
For advertising clients, AI is enhancing marketing campaigns by boosting return on investment and refining targeting capabilities. In the first quarter, Alphabet generated $34.5 billion in net income, positioning it well to continue investing heavily in AI to strengthen its competitive edge.
### Alphabet’s Economic Moat
Alphabet’s substantial economic moat underscores the exceptional nature of its business. The company benefits from strong network effects in both Search and YouTube. It holds invaluable intangible assets, such as the Alphabet and Google brands, unparalleled technological expertise, and the capacity to gather extensive data, all of which influence strategic decisions.
Moreover, Google Cloud presents a cost advantage due to the significant fixed costs required for infrastructure development. While the segment was initially unprofitable, it has now scaled up to a $49 billion annualized revenue run-rate in the first quarter, contributing $2.2 billion in operating income during this period.
Clients of Google Cloud incur high switching costs, making them likely to remain with Alphabet as a crucial IT partner, avoiding potential operational disruptions.
### Trading at a Discount to the Market
Investors might note that Alphabet’s valuation is difficult to overlook. Its shares trade at a price-to-earnings (P/E) ratio of 19.2, a discount to the S&P 500 Index, which appears unwarranted given the company’s caliber. Among the “Magnificent Seven” stocks, Alphabet is the most affordable.
The appeal of such an opportunity in the stock market may lead investors to question if they are missing something. However, overanalyzing may not be necessary, as Alphabet presents a prudent buying opportunity during this dip.