Why Alphabet Stock Gained 12% in January

Source The Motley Fool

Shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) were among the winners last month after the tech giant unveiled a breakthrough with its new quantum chip, Willow.

The news set off a surge in quantum computing stocks, and Alphabet jumped over a two-day span after the announcement, as it was the latest evidence that the company is on the cutting edge in the AI race.

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According to data from S&P Global Market Intelligence, the stock finished the month up 12%. As you can see from the chart below, the gains came largely following the quantum computing announcement on Dec. 9.

GOOGL Chart

GOOGL data by YCharts

Google rings in the quantum computing era

Alphabet shares jumped 5.6% on Dec. 10 and then another 5.5% on Dec. 11 following the news about Willow.

On Dec. 9, Alphabet said in a blog post that Willow achieved state-of-the-art performance in several metrics. Among its most notable achievements was that it was able to reduce errors exponentially as Alphabet scaled up to using more qubits. The company said that had been a challenge in quantum error correction for nearly 30 years.

The other significant achievement was that Willow made a benchmark computation that would have taken one of today's top supercomputers 10 septillion (or 10^25) years in less than five minutes, showing the tremendous leap that quantum computing can achieve.

It's unclear what the upshot of Willow will be, but Google's blog noted that "It's a strong sign that useful, very large quantum computers can indeed be built," which could ultimately high-scale algorithms at very fast speeds.

Alphabet's accomplishment also set off a boom in quantum computing stocks as Rigetti Computing, Quantum Computing, and D-Wave Quantum all more than doubled last month.

A person clicking on a search bar.

Image source: Getty Images.

What's next for Alphabet

Perception is arguably as important as reality in the tech arms race. Shortly after the launch of ChatGPT, Alphabet was perceived as a loser after Bard, its first generative AI chatbot, made mistakes at its first presentation.

However, Alphabet has overcome that setback, replaced Bard with Gemini, and added an AI assistant to Google searches to keep users in its ecosystem. Thus far, the business continues to perform well, also with steady growth in revenue and profits. Alphabet is also cheaper than most of its "Magnificent Seven" peers, making it a better value.

It could still be years before quantum computing moves the needle for Alphabet, but last month's announcement should reassure investors that the company remains on the cutting edge of technology, which could be as important to the stock as delivering meaningful business gains.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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