Source: PaxForex Premium Analytics Portal, Fundamental Insight
Alphabet has been making headlines, as is typical for one of the largest tech companies. In recent quarters, the company has experienced a challenging slowdown due to the complex macroeconomic landscape, which has resulted in reduced demand in the digital advertising market. Nonetheless, Alphabet's impressive 127% return over the past five years has kept it in the spotlight as an attractive investment option for many.
However, it's important to have a comprehensive understanding of the overall situation. To gain a clearer perspective, let's examine both the bearish and bullish arguments surrounding this FAANG stock.
In recent months, artificial intelligence (AI), particularly ChatGPT, has emerged as a highly discussed topic in the corporate world. Its integration into Bing, the search engine owned by Microsoft, has raised concerns for Google Search, Alphabet's flagship product. The potential threat lies in the possibility of AI-enhanced Bing capturing a significant portion of Google's dominant market share. This new technology also raises questions about the long-term viability of the search advertising business. If users can obtain direct answers from AI tools by simply asking questions, there will be fewer opportunities to display paid search ads, which could significantly impact Alphabet's core business.
Additionally, reports have surfaced indicating that Samsung, holding a substantial 20% share of the global smartphone market, plans to switch the default search engine on its devices from Google to Bing. Such a move would result in reduced usage of Google Search, further diminishing its advertising revenue. It is worth noting that Alphabet already pays Apple a staggering $20 billion annually to maintain Google as the default search engine on iPhones, highlighting the importance of securing prominent placement on smartphones for consumer engagement.
These developments present challenges for Alphabet, as a potential decline in market share and ad revenue could have a substantial impact on its overall business performance.
One aspect of the bear argument against Alphabet revolves around its diminishing presence in the digital advertising market. Data from Statista indicates that Alphabet's market share dropped from 30.2% in 2017 to 28% last year, while competitors like Meta Platforms, Amazon, and Alibaba have gained ground. This trend suggests that Alphabet's long-standing dominance in the industry it helped pioneer may be eroding.
The integration of ChatGPT and its potential impact on Alphabet's search business has also raised concerns among shareholders. However, it is worth noting that since ChatGPT's release in late November, Google's share of the search market has actually increased, while Bing's share has experienced a significant decline, as reported by Statcounter.
These observations suggest that the anxiety surrounding ChatGPT may be exaggerated, particularly considering Google's substantial lead in the search market. Additionally, with its strong pool of top tech talent and a substantial cash reserve of $115 billion in cash equivalents and marketable securities, Alphabet possesses the resources necessary to compete effectively with any potential challengers.
Alphabet indeed enjoys several significant tailwinds that work in its favor. The digital advertising market, projected to reach approximately $1.5 trillion by 2030, provides a robust growth opportunity in which Alphabet holds a strong position. Additionally, cloud computing represents a major growth engine for the company. Google Cloud platform's revenue in the first quarter of 2023 amounted to $7.5 billion, marking a 28% year-over-year increase. Furthermore, the rising popularity of streaming entertainment has resulted in an increasing share of people's viewing time. As the owner of YouTube, Alphabet is well-positioned to capitalize on this trend.
Despite a 39% year-to-date increase in Alphabet's stock price, the valuation remains reasonable. With a price-to-earnings ratio of 27, slightly below its five-year average, investors can acquire exposure to one of the world's premier businesses at an attractive price.
Given the positive factors discussed, such as Alphabet's strong position in the digital advertising market, growth opportunities in cloud computing, and ownership of YouTube, it is reasonable to conclude that the bullish case outweighs the bearish case for the company. Therefore, investors may find it advantageous to consider purchasing Alphabet stock at present and holding it for the long term, taking advantage of the company's potential for continued success.
As long as the price is above 115.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 122.89
- Take Profit 1: 128.00
- Take Profit 2: 133.00
Alternative scenario:
If the level of 115.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 115.00
- Take Profit 1: 112.00
- Take Profit 2: 109.00
