Can the Rally in Alphabet (GOOGL) Stock Continue with New Quantum Computing Chip?

Alphabet's (GOOGL) stock has been making waves as it reaches new 52-week highs this week. This surge follows the announcement of Willow, a cutting-edge quantum computing chip from the company.

Willow is designed to tackle a significant challenge in the realm of quantum error correction that has been a focus for nearly three decades. The chip boasts remarkable performance, outpacing its competitors in various metrics and standard benchmark tests.

Willow has Pushed GOOGL Toward $200 a Share

Alphabet’s stock is inching closer to the $200 per share mark, mirroring the performance of its tech counterpart, Amazon (AMZN). Amazon shares recently surged past $200 after introducing an updated version of its advanced AI chip, Rainer, which contributed to the development of a powerful supercomputer.

In a similar fashion, the introduction of Willow has invigorated Alphabet's stock. The shares have surpassed both the 50-day and 200-day Simple Moving Averages (SMAs) that hovered around $160. In December alone, Alphabet's stock climbed by 16%, and year-to-date, it has achieved gains of approximately 40%. While this lags behind Amazon's 50% growth, it has still outperformed broader market indexes.

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Why Willow is so Significant

Willow is designed to drastically minimize errors as it scales up its functions. Alphabet revealed that Willow accomplished a computing task in less than five minutes, a process that would require a classical supercomputer around 10 septillion years to complete. This advancement is viewed as a crucial step towards creating commercially viable quantum computers, which could potentially transform industries such as medicine, energy, and artificial intelligence.

Monitoring Alphabet’s Valuation

As interest in Alphabet grows among technical traders, potential investors may find GOOGL's current valuation of 23 times its forward earnings appealing. This valuation places it at a slight discount compared to the S&P 500 index and gives GOOGL the lowest P/E ratio among its peers in the Magnificent 7 tech group. By comparison, Meta Platforms (META) has a P/E ratio of 27.3, while Amazon stands at 43.3.

Final Thoughts

Like many of its peers in the Magnificent 7, Alphabet anticipates double-digit growth in both its revenue and profits over the coming years, with Willow serving as a potential catalyst for its expansion and competitive edge in the market. However, after such a significant price rally, Alphabet's stock currently holds a Zacks Rank of #3, signifying a 'Hold' recommendation. That said, positive trends in earnings estimate revisions for fiscal years 2024 and 2025 suggest that there could be more upward movement for GOOGL's stock in the future.

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