Gemini AI Is Gaining Traction. Is It Time to Buy Alphabet Stock?

Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) artificial intelligence (AI) efforts have not always gotten the best press. The technology and business website The Information recently published an article about how the company's Gemini AI was too difficult for app developers and businesses to use compared to that of rivals such as OpenAi.

However, within days of that article, the company announced several Gemini wins. Let's take a look at these and what they could mean for the stock.

Gemini gains momentum

The first big AI win for the company was with Snap, which will incorporate Alphabet's Gemini AI model into its Snapchat My AI chatbot. Snap launched its My AI chatbot last year using generative AI models from OpenAI, but it began incorporating Gemini into its chatbot earlier this year because of its ability to process video, audio, and text simultaneously.

Snap CEO Evan Spiegel said the inability of its chatbot to quickly process video and images was holding back its vision, since this is the main way that Snapchat users communicate with one another. He said that since incorporating Gemini into My AI, it has seen 2.5 times more engagement from users sending photos and videos to the chatbot.

Snap also said that it is considering incorporating Gemini into its Spectacles smart glasses, which it just recently introduced.

In addition, Warner Bros. Discovery will now start using Gemini to generate captions for unscripted programming on its Max streaming service. The media company says that Gemini will reduce its captioning costs by half while taking 80% less time. The caption project was developed using Google's Vertex AI platform.

Alphabet also announced that Volkswagen will partner with the company on a new AI smartphone assistant. It was created by incorporating vehicle maintenance data from Volkswagen owners' manuals and YouTube videos into Gemini.

The aim is to allow VW owners to ask questions such as how to change a flat tire, and to point their phones at a vehicle's dashboard to get relevant information. The new AI assistant will initially be available for Atlas SUV models before being rolled out to other models.

Alphabet also announced a number of other new and expanded AI Gemini deals with companies such as Best Buy, Scotts Miracle-Gro, Telecom Italia, UPS Capital, and others.

Image source: Getty Images.

Is it time to buy Alphabet stock?

Given the questions surrounding Gemini, these are some nice wins for Alphabet. The Snap deal in particular is big since the social media company was already using OpenAI but opted to incorporate Gemini for its ability to process multiple types of data beyond text.

The deal also helps dispel the notion that the company is greatly trailing OpenAI with its AI models. In fact, Snap's decision shows that OpenAI appears to be trailing Gemini in some key areas of video and image processing.

At the same time, Alphabet's Google Cloud division has been an AI beneficiary as well, with customers building out their AI capabilities on top of its infrastructure. The cloud segment grew its revenue 29% last quarter to $10.2 billion, while its operating income soared from $395 million to $1.17 billion as the division gains critical scale.

The company also remains the unprecedented leader in search, and that is highly unlikely to change. In the recent antitrust suit between the U.S. and Google, Apple leadership said that there was no amount of money Microsoft could pay it to switch from using Google as its default search engine given Bing's inferior quality.

Meanwhile, new AI search upstarts such as Perplexity and SearchGPT don't have the number of users and thus the ability to effectively monetize ads and will just bleed cash for a very long time.

And with new ad formats, AI opens up an opportunity for Alphabet to monetize the 80% of its search traffic it doesn't currently serve ads to. This is a big chance for the company and one that many critics miss out on when looking at the stock and thinking AI could be more of a risk than an opportunity.

With the stock off its highs, Alphabet is now trading at a very attractive valuation, with a forward price-to-earnings ratio (P/E) of 18 based on next year's analyst estimates and a price/earnings-to-growth ratio (PEG) of under 0.7. In general, a stock with a PEG under 1 is considered undervalued, so by that metric, Alphabet appears to be in the bargain bin.

GOOGL PE ratio (forward 1 year); data by YCharts.

With Gemini gaining momentum and the stock this cheap, I'd be a buyer of Alphabet at current levels.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet and Warner Bros. Discovery. The Motley Fool has positions in and recommends Alphabet, Apple, Best Buy, Microsoft, Scotts Miracle-Gro, Volkswagen, and Warner Bros. Discovery. The Motley Fool recommends United Parcel Service and Volkswagen Ag and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.