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

Alphabet is concluding 2024 on a high note, driven by significant strides in quantum computing that have triggered a stock rally as the year approaches its end, despite its lack of immediate commercial application.

The shares of Google’s parent company have risen over 30% since reaching a low in September, with a large portion of these gains attributed to announcements about the performance of its quantum computer, powered by the Willow chip. This breakthrough in quantum computing has generated optimism amidst worries that Alphabet might be falling behind AI-focused rivals like OpenAI, as well as concerns over antitrust issues, enabling the stock to reclaim its position as a leading performer among large-cap stocks. It now stands among the top 20 stocks in the Nasdaq 100 for the year.

“Investor sentiment had been negative, with many viewing Alphabet as a legacy company trailing behind crucial industry innovations, but this advancement showcases that it still holds its competitive edge,” remarked Michael Smith, a senior portfolio manager at Allspring Global Investments. “It serves as a reminder to the market that Alphabet is rich in intellectual property and remains a vital player in the technology of the future.”

According to the company, the algorithm used to assess the capabilities of the quantum computer is not currently applicable in real-world situations and is unlikely to produce revenue in the near term. However, the long-term potential is seen as immense, with Alphabet’s advancements enhancing the stocks of other firms involved in similar technological pursuits, such as Quantum Computing Inc, Rigetti Computing Inc, D-Wave Quantum Inc, and IonQ Inc.

Governments, tech companies, and venture capitalists have invested billions into quantum computing, given its processing power that far surpasses classical computing. Analysts at Bank of America have outlined numerous prospective applications for this technology, such as drug discovery, advanced materials engineering, and next-generation encryption solutions.

“Quantum innovation could establish a significant technological barrier for Alphabet,” wrote Bank of America analyst Justin Post, despite commercial applications being several years away. He highlighted that Alphabet’s “track record of successfully monetizing next-generation technologies” is undervalued in the current stock market.

Currently, Alphabet shares are trading at about 21 times projected earnings, a figure below the Nasdaq 100’s 27-fold multiple. It also holds the lowest valuation multiple among the Magnificent Seven stocks.

Antitrust pressures have impacted the stock following an August ruling that found Google had illegally monopolized the search market. The US Justice Department has suggested forced divestiture of the Chrome web browser and has sought to dissolve a partnership with AI startup Anthropic—actions viewed as more severe than expected. While the ultimate consequences remain uncertain, President-elect Donald Trump’s selections for antitrust roles are anticipated to adopt a stringent approach toward large tech firms.

Yet, some investors argue that the current valuation adequately reflects the existing regulatory risks, especially in light of the company’s recent financial results, which demonstrated solid fundamentals beyond these challenges.

“We view any volatility related to antitrust matters as a buying opportunity, as the company continues to showcase strong growth prospects,” noted Hanna Howard, a portfolio manager at Gabelli Funds. “Alphabet is consistently innovating, and we should begin to see returns from the investments it has made.”

Kevin Walkush, a portfolio manager at Jensen Investment Management, shares a similarly optimistic view. He values Alphabet for being a dominant force in the AI sector, with quantum computing offering additional potential.

“From a valuation standpoint, it’s not a drastic shift,” Walkush noted. “However, there is considerable potential linked to quantum, though it is still quite remote in terms of delivering tangible value, which makes the likelihood of success seem low at this juncture.”

Tech chart of the day

Meta Platforms Inc shares have skyrocketed 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 innovation. Meanwhile, Tesla Inc, under the leadership of Elon Musk, is close behind with a 93% increase year-to-date, bringing 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 results.

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