Is Alphabet Stock a Buy Now?
Advertising and tech giant Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has rallied Wall Street this year, with its stock up about 52% since Jan. 1. Along with the likes of Nvidia, Amazon, and Microsoft, Alphabet has joined the current boom in artificial intelligence (AI) and has solid prospects in the sector.
The company started 2023 with the launch of Bard, an AI chatbot similar to OpenAI’s ChatGPT. The platform initially disappointed, with a rushed release leading to a flawed debut. However, Alphabet appears to have learned and has slightly pulled back, using the rest of the year to develop the highly anticipated large language model Gemini, which will be released in 2024.
The new model is expected to be competitive with OpenAI’s GPT-4 and could open the door to countless growth opportunities for Alphabet.
Alongside AI, the company has used the popularity of platforms like Google Search and YouTube to become a leading name in digital advertising, with earnings soaring over the last five years.
The tech company is on a promising growth trajectory you won’t want to miss. Here’s why Alphabet stock is a screaming buy right now.
Lucrative opportunities in multiple markets
As the home of potent brands like Google, Android, and YouTube, Alphabet has prominent positions in markets across tech. The company holds an over 80% market share in search engines, dominates online video sharing with YouTube, and is experiencing rapid growth in cloud computing. In fact, Alphabet has nine products with more than 1 billion users, representing vast earnings potential.
The tech giant used the popularity of its various services to achieve a 25% market share in the $680 billion digital ad market. The industry proved vulnerable to macroeconomic headwinds last year but is quickly improving. In the third quarter of 2023, Alphabet posted revenue gains of 11% year over year, beating analysts’ forecasts by $980 million.
The rise was primarily thanks to solid growth in advertising, with Google Search revenue increasing 11% and YouTube ads by 12%. The market will likely continue expanding as inflation eases and more businesses turn to digital methods to boost earnings.
Google Cloud, Alphabet’s fastest-growing business, saw sales rise 23% year over year in the quarter. The platform holds the third-largest cloud market share, with the industry a promising way to expand in AI.
Demand for AI cloud services is soaring as companies increasingly seek ways to integrate the technology into their workflows. As a result, Alphabet is heavily investing in Google Cloud’s AI capabilities.
The company has already seen some success in the space, revealing in August that 70% of AI start-ups worth more than $1 billion are Google Cloud customers, including Anthropic, Character.ai, and Cohere.
Alphabet is a tech behemoth showing no signs of slowing, with exciting prospects in multiple high-growth sectors.
Alphabet stock is one of the biggest bargains in tech
Alphabet has a stellar outlook over the long term. However, its business has been slightly overshadowed by competitors like Amazon and Microsoft, which experienced more significant stock gains this year. Alphabet arguably has equal, if not more, growth potential than these companies, suggesting it could be undervalued.
Data by YCharts
The charts above compare the forward price-to-earnings (P/E) and price-to-free-cash-flow ratios of some of the most prominent names in tech, all active in cloud computing and AI. For both valuation metrics, Alphabet has the lowest figures, indicating its stock offers more value than any of these companies.
Over the last five years, Alphabet’s annual revenue has risen 107%, with operating income soaring about 130%. Meanwhile, free cash flow exceeded $77 billion this year, significantly more than any company in the charts above.
Alphabet has a potent position in tech, with the cash to continue investing in its business. Meanwhile, its forward P/E and price-to-free-cash-flow ratios show it is one of the biggest bargains in tech. As a result, Alphabet is absolutely a buy now and too good to pass up.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Original: GOOGL Feed: Is Alphabet Stock a Buy Now?