Urgent Motivations to Invest in Alphabet Shares without Considering a Future
In the current market boom, you might think there aren't any bargains left. But fear not, as there's always a hidden gem lurking somewhere. And that gem, it seems, is none other than tech giant Alphabet (GOOG -4.03%, GOOGL -4.20%).
1. Value for Money
Alphabet had a solid rally last year, yet it remains the most affordable stock in the tech elite group known as the "Magnificent Seven." With a P/E ratio of 26.8, alphabet is the cheapest, while no other Magnificent Seven stock has a valuation below 30. On a forward basis, Alphabet's P/E ratio dips to 22.5, even lower than the S&P 500's 24.3.
This low valuation isn't just due to Alphabet's affordable price tag. It also boasts $93 billion in cash, making up around 4% of its market cap. Plus, Alphabet's leakage to the "Other Bets" segment, a hub for experimental projects, is curtailing present profits but may hold future value.
2. AI is the Future - And Alphabet is Leading the Charge
Investors may be skeptical, given the rise of AI startups like OpenAI and Perplexity. However, Alphabet's AI subsidiaries DeepMind and Google Brain are packing a punch. Google Brain was the first to create transformer technology, the innovation behind recent AI hypes like ChatGPT. Since the introduction of ChatGPT, Google's AI researchers have sharpened their focus and unveiled Gemini 2.0, their in-house language model, to favorable reviews. By incorporating AI-powered summaries, Google can maintain its customers within its ecosystem, warding off potential challenges from competitors.
Google's nonchalance towards ChatGPT's advent is misleading. Last quarter, Google Search still exhibited growth of 12.2%, with no evident ill effects from the new AI competition. Google's AI-driven costs are likely to be lower due to the use of Tensor Processing Units and optimized AI infrastructure, placing Alphabet in a more cost-effective position than new AI startups.
3. Google Cloud: The Quiet Giant
While Google Search and YouTube take center stage, Google Cloud is starting to make its presence felt. Google Cloud is the third-largest player in the cloud infrastructure oligopoly, with a surprising 35% revenue growth in the last quarter and an operating profit that surged 7.3 times over to $1.95 billion.
Although Google Cloud was in the red not long ago, its $8 billion profit run-rate is now contributing significantly to Alphabet's overall financial health. Google Cloud contributed 7% to overall operating profit last quarter and is projected to increase its impact as businesses begin to shift to cloud-based IT services.
4. Waymo: The Autonomous Driving Promise
Waymo, Alphabet's futuristic self-driving subsidiary, is often sidelined. However, 2023 was a turning point for Waymo. It had already commenced operations in Phoenix in 2020, but the expansion to San Francisco and the launch of full-service public operations in Los Angeles succeeded in securing a market share equivalent to Lyft in San Francisco by November, according to YipIt data. Waymo also announced its mission to expand to Austin, Atlanta, and Miami in 2025 and initiate international testing in Tokyo by 2024.
Waymo's formation as an experimental project within the "Other Bets" consortium could yield significant returns in the long run, even if it requires patience. Meanwhile, Tesla draws interest with a projected robotaxi valuation that neglects Waymo's present accomplishments and real-world operation in major cities.
Enrichment Data:
- Low P/E Ratio: Alphabet's P/E ratio of 26.8 is lower than the S&P 500's forward P/E ratio of 24.3, indicating an undervalued stock with promising earnings potential.
- Strong Cash Reserves: Alphabet has a substantial cash reserve of $93 billion, which is approximately 4% of its market cap, providing financial stability and versatility in investment choices.
- AI Capabilities: Alphabet's AI capabilities, such as DeepMind and Google Brain, offer competitive advantages, and its transformer technology has been a breakthrough in AI innovation.
- Google Cloud Growth: Google Cloud is exhibiting impressive growth with a 35% revenue surge in the last quarter and a 7.3 times surge in operating profit, indicating potential for future revenue expansion.
- Waymo Growth: Waymo's expansion in cities and increasing market share suggest significant potential for growth in the autonomous driving sector. Despite being part of Alphabet's "Other Bets" segment, Waymo presents a hidden gem worth investors' attention.
- Financial Health: Alphabet demonstrates robust financial health, with a high Altman Z-Score and a comfortable interest coverage ratio, signaling low bankruptcy risk and a strong ability to cover interest expenses with earnings.
1. Smart Investments in Tech Giants
Given Alphabet's affordable price tag and solid financial health, smart investors might consider allocating a portion of their finance in this tech giant. With a low P/E ratio and substantial cash reserves, Alphabet represents a well-balanced investment opportunity in the tech sector.
2. Alphabet's Future in Finance
As tech giant Alphabet continues to make significant strides in AI and cloud services, it's clear that investing in these areas could yield high returns. By capitalizing on its cutting-edge AI capabilities, such as DeepMind and Google Brain, and its growing Google Cloud business, Alphabet is poised to remain a key player in the ever-evolving world of finance and technology.
