Source: PaxForex Premium Analytics Portal, Fundamental Insight
Alphabet shares have surged 6,290% since their initial public offering (IPO) in August 2004, while the S&P 500 has returned 637% during the same period. Now valued at $2 trillion and with $328 billion in sales over the past year, Alphabet remains a compelling investment.
Here are five reasons why Alphabet stock is still a strong buy:
- Secular Growth Trends
As a dominant force in the digital landscape, Alphabet capitalizes on several long-term growth trends. Its core revenue driver, digital advertising, accounts for over 40% of the global market. The company’s YouTube platform is now the most-watched TV streaming service in the US, surpassing even Netflix.
In cloud computing, Alphabet is experiencing significant growth. Google Cloud, holding the third-largest market share, saw a 29% revenue increase and achieved an 11% operating margin in the second quarter. Additionally, Alphabet's autonomous driving project, Waymo, presents another avenue for potential future growth.
- Strong Financial Health
Alphabet's financial position is powerful. In Q2, the company posted $23.6 billion in net income, reflecting an impressive 28% net profit margin. Even during the challenges of 2022, Alphabet maintained a solid margin of 21%. With $87 billion in net cash on its balance sheet as of June 30, Alphabet is in a prime position to weather financial uncertainties and continue growing.
- AI Integration
Alphabet has been a pioneer in artificial intelligence (AI) since 2001, integrating the technology into its core product, Google Search. Today, AI is embedded across nearly all of Alphabet's offerings, from Google Maps and YouTube to Gmail and Google Cloud. This deep AI integration allows Alphabet to continually enhance its services for billions of users worldwide, giving it a key competitive edge.
The company’s commitment to AI is evident in its capital expenditures, with plans to invest over $12 billion per quarter, primarily focused on expanding its AI capabilities and infrastructure.
- Powerful Network Effects
Alphabet’s platform benefits from one of the strongest network effects in the world. Google Search, for instance, becomes increasingly valuable as more data and information are generated, attracting more users and advertisers. Similarly, YouTube thrives on a virtuous cycle: the more viewers it attracts, the more content creators are incentivized to produce, which in turn draws in even more viewers.
These network effects reinforce Alphabet’s dominance and create a substantial barrier for competitors.
- Attractive Valuation
Despite Alphabet’s outstanding growth and dominance, its shares currently trade at a forward price-to-earnings ratio of 20.8, offering a discount compared to the broader S&P 500. Given its market leadership, robust financials, and growth potential, Alphabet is significantly undervalued compared to its peers, making it the most affordable stock among the "Magnificent Seven" tech giants. This presents an additional reason to consider investing in Alphabet.
In conclusion, Alphabet remains a powerhouse in the tech industry, with a track record of exceptional growth and a solid foothold in multiple key markets. Its leadership in digital advertising, cloud computing, and AI, along with its ambitious ventures like Waymo, position the company for continued long-term success. Alphabet's strong financial health, underpinned by impressive profitability and a significant cash reserve, ensures stability and the ability to invest heavily in future technologies. Combined with its attractive valuation, Alphabet offers investors a unique opportunity to tap into one of the most dominant and forward-thinking companies in the world.
Provided that the stock remains above 160.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 164.22
- Take Profit 1: 175.00
- Take Profit 2: 185.00
Alternative scenario:
In case the level of 160.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 160.00
- Take Profit 1: 150.00
- Take Profit 2: 140.00
