Source: PaxForex Premium Analytics Portal, Fundamental Insight
Alphabet Inc. has decisively outperformed expectations in its most recent financial report for Q2 2023, concluding on June 30. The company posted impressive figures, with a revenue of $74.6 billion, marking a 7% increase compared to the previous year, and a remarkable diluted earnings per share of $1.44, reflecting a substantial 19% rise.
This robust underlying performance has been a driving force behind the notable 47% surge in the stock's value this year. Looking forward, the potential for further gains remains promising. With August drawing to a close, it's prudent for investors to consider embracing this leading FAANG stock. Here are three compelling rationales:
Similar to its FAANG counterparts, Alphabet currently boasts a solid financial foundation. As of June 30, the company maintains an enviable balance sheet, holding $118 billion in cash, cash equivalents, and marketable securities, while carrying just under $14 billion in long-term debt. This substantial net cash position is a rarity and signifies a strong position in the market.
Throughout the first half of 2023, Alphabet demonstrated its prowess by generating nearly $40 billion in free cash flow, attributable to its highly profitable operations. Given that the company's capital expenditures traditionally account for less than 10% of overall revenue, its ability to generate revenue is truly impressive.
In the current climate of uncertainty, characterized by the looming possibility of a recession due to rapidly rising interest rates, it is wise for investors to gravitate towards companies that exhibit financial stability. In this regard, Alphabet not only meets but surpasses expectations. Even in the event of a severe economic downturn, concerns about the company weathering the storm are minimal. In fact, there's a strong case to be made that Alphabet could emerge from such challenges even stronger, particularly as smaller competitors struggle to stay afloat.
Since its launch in November 2022, no subject has captured more attention within the realm of artificial intelligence (AI) than ChatGPT. As businesses strive to seamlessly integrate this technology into their operations and investors seek to capitalize on the trend, regulatory bodies are grappling with the challenges of overseeing this rapidly evolving landscape. Undoubtedly, these are exhilarating times.
Investors might be enticed to overlook Alphabet in favor of newer, more speculative AI-focused stocks. However, this perspective would overlook a crucial aspect, potentially introducing additional risk to portfolios due to the untested nature of these emerging enterprises.
Sundar Pichai has prominently positioned AI as a core focus for Google since assuming the role of CEO in 2015. This stance underscores that Alphabet is not lagging in the AI arena. On the contrary, the company has long held a leading position in this domain. AI is deeply interwoven into a spectrum of products including Search, Maps, Gmail, Google Cloud, and YouTube.
Moreover, during a recent developer conference, Pichai unveiled the company's upcoming AI endeavors. These encompass diverse initiatives such as generative search, enriched perspectives in Maps, and enhanced photo editing functionalities.
Fueled by its formidable financial standing, as elaborated earlier, in conjunction with its expansive scale, one can confidently adopt a bullish outlook on Alphabet's capabilities. The company possesses the financial resources and technological prowess required to sustain substantial investments in the field of AI.
Despite being a front-runner in digital advertising, cloud computing, streaming entertainment, and AI breakthroughs, Alphabet's current stock valuation presents an unexpectedly affordable opportunity. Presently, shares are trading at a forward price-to-earnings ratio of 23.2. This stands as a significant markdown compared to the tech-centric Nasdaq 100 Index's ratio of 27.2, signifying that Alphabet is currently more cost-effective than the majority of its industry peers. From my perspective, this valuation appears unjustified.
Alphabet undeniably commands a position of dominance within its field, boasting substantial potential for expansion. The sectors it operates in are poised for substantial growth in the coming decade, a trajectory that will undoubtedly work in favor of Alphabet. Given these factors, investing significantly in this stock before the conclusion of August appears to be a straightforward decision.
As long as the price is above 126.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 134.98
- Take Profit 1: 140.00
- Take Profit 2: 148.00
Alternative scenario:
If the level of 126.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 126.00
- Take Profit 1: 121.00
- Take Profit 2: 115.00
