“Last year, savvy investors who bought the dip had the opportunity to purchase discounted FAANG stocks – Facebook (now Meta), Amazon, Apple, Netflix, and Alphabet (formerly Google) at a lower price. While any of these tech giants would make a strong addition to a portfolio, one stock that stands out is Alphabet. Despite experiencing a drop of over 40% in the past year, Alphabet’s future prospects are bright.
Long-term investors may consider buying in now as Alphabet continues to expand into various segments of the internet, including the upcoming Web3 and the growing demand for cloud services, signaling that the company may just be getting started.
Web3 Is Coming, and Alphabet Is Positioned to Dominate
Just two decades ago, most internet users were still using dial-up connections. However, with the emergence of Web2, Alphabet’s Google emerged as a leader in the industry. As of December 2022, Google’s search engine has a staggering 92.5% market share, with Bing coming in a distant second at 3%.
As the world enters the era of Web3, some investors question whether Google has reached its peak. Web3 is built around cutting-edge technologies such as artificial intelligence, blockchain, decentralization, semantic web architecture, and personalization.Google has already taken steps to be a part of the Web3 revolution by creating a division dedicated to it.
The company’s investment in this new unit is based on the immense potential that Web3 and crypto-related technologies bring. The division prioritizes blockchain technologies and has already released innovative solutions. Google’s aim is to “build a giant bridge” between Web3 developers and blockchains through its Google Cloud services, positioning itself as the backbone of Web3 development.
As Google continues to strengthen its Blockchain Node Engine, it is likely that the company will increase its online dominance and become a significant player in Web3, making it a smart investment opportunity to consider
Reasons to Buy Alphabet — Take Your Pick
Market analysts are in agreement that Alphabet is a Buy, if not a Strong Buy, and for good reason. The company boasts a market cap of $1.18 trillion, making it one of the most powerful companies in the world. Additionally, Alphabet has consistently maintained strong profit margins, historically between 25% and 35%. Even though the company’s revenues were down last year, it still reported a 6% increase year over year in its latest earnings release.
Google Services, which includes its advertising business and related hardware, Google Play, and YouTube subscriptions, are the company’s primary source of operating income.
However, segments such as Google Cloud and “Other Bets” have a promising future and are expected to contribute significantly more to Alphabet’s bottom line in the coming decade. For example, the company’s Other Bets include Waymo, its autonomous vehicle division, and various life sciences projects.
Furthermore, Alphabet’s current price-to-earnings (P/E) ratio is less than 17.8, which is lower than the S&P 500’s ratio of 19.2. This indicates that the market is expecting Alphabet’s profits to grow more slowly than the broad market.
However, this ratio is an opportunity for long-term investors to buy, given Alphabet’s track record, level of innovation, industry dominance, and share buyback program. Even if a recession hits, Alphabet may experience some turbulence, but it is expected to bounce back in the long-term and reward those who took advantage of this entry-point opportunity.
Alphabet and AI
Alphabet, the parent company of Google, is widely known as a search engine and digital advertising giant. However, if you’re looking to add more artificial intelligence (AI) related stocks to your portfolio, Alphabet should be near the top of your list. The company incorporates AI to improve search quality and development, but that’s just the beginning of its AI endeavors.
Alphabet is using AI to drive efficiencies on YouTube, adapt to competitors, and tackle some of the world’s most challenging problems. From 2009 to 2020, Alphabet acquired the most AI start-ups, positioning itself to become a full-stack, AI-first company. One of its most promising AI ventures is DeepMind, a cutting-edge company that employs some of the best scientists, engineers, and researchers worldwide.
Experts predict that the total addressable market for AI will surpass $1 trillion by 2030, and Alphabet is well-positioned to benefit from this growth. In the long-term, the potential for Alphabet’s growth and profitability in the AI market is massive. As the downturn in the ad market ends and Alphabet’s growth accelerates, it’s expected that the company’s constant innovation and evolving opportunities will drive a much higher valuation.
Why Did Alphabet’s Stock Plummet — Should You Buy?
Last year, the tech sector experienced a downturn, and even the largest companies were not immune. The market sell-off and resulting bear market was caused by a combination of factors, including rising interest rates, fears of a recession, and the war in Ukraine.
For Alphabet, a significant factor was the slowdown in the ad market. However, these short-term challenges will eventually pass, and the economy will recover. The current lower price of Alphabet’s shares represents a buying opportunity. From a valuation perspective, the potential for growth is substantial.
Alphabet has room to grow in the coming years and decades. By investing now, holding onto your shares, and following the company’s progress in Web3 and beyond, you will be well-positioned to benefit from its future success.
At under $90 per share at the time of writing, 100 shares would set you back close to $9,000. And with fair market value of $127.91 per share that’s a 40% plus upside potential for holding a rock solid name that’s on sale.