Why Alphabet Stock Popped Today
Key Points
Apple may pay Alphabet $1 billion a year to use Gemini AI to power Siri.
Bloomberg reported this news last week -- and then again today.
$1 billion is less than 1% of Alphabet's $385 billion annual revenue stream.
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Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) jumped 3.3% through 10:30 a.m. ET Monday. Part of the reason was investor optimism over the prospect that the government shutdown may be nearing its conclusion -- but that wasn't the only reason.
As Bloomberg reports, Apple (NASDAQ: AAPL) plans to upgrade its iPhones for improved access to satellite communications -- and also to upgrade the artificial intelligence powering its Siri virtual assistant. Key to that latter upgrade will be paying Alphabet $1 billion a year for a "custom" model of its Gemini AI to back up Siri.
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Image source: Getty Images.
Google's big "news"
But here's the thing: To the extent that it's Apple's Siri news that's driving Alphabet's gains, well, this "news" isn't really news at all.
Bloomberg actually first reported on Apple's interest in paying Alphabet $1 billion for AI assistance for the Siri virtual assistant last week. Even worse news for Alphabet investors, Bloomberg noted at the time that Apple really only wants to use Google Gemini "as a stopgap until its own systems are ready" -- so this may not even be a long-term revenue stream for Alphabet.
Is Alphabet stock a buy?
That said, even if it were a long-term commitment, $1 billion in additional revenue from Apple would hardly be a needle mover for Alphabet, which does more than $385 billion in annual revenue already. Investors considering an investment in Alphabet, therefore, should probably focus on the business as it is and not on any changes coming from a deepened relationship with Apple.
And how is Alphabet stock looking today? Well, the stock costs 27 times earnings but pays only a 0.3% dividend and is expected to grow earnings only 15% annually over the next five years. That looks expensive to me -- yet another reason not to buy Alphabet stock today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.
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