5 reasons to buy Alphabet stock like there’s no tomorrow

Alphabet (GOOGL 1.03%) (GOOG 0.96%) shares have risen 6,290% since their initial public offering 20 years ago in August 2004. During the same period, S&P 500 generated a total return of 637%.

Today, Alphabet is one of the most dominant businesses in the world, owning a market capitalization of $2 trillion and posting $328 billion in sales over the past 12 months. But it still looks like a smart investment opportunity.

Here are five reasons to buy Alphabet stock like there’s no tomorrow.

1. Secular trends

Alphabet is a leading Internet enterprise that has its hands in various digital arenas. Consequently, it benefits from multiple secular trends.

Investors may already know that digital advertising is the company’s bread and butter. It holds more than 40% of the market globally.

The company thrives as the media landscape has shifted to streaming entertainment. YouTube, which Alphabet acquired for less than $1.7 billion in 2006, accounts for the most TV viewing time in the US, even more than Netflix.

As IT spending moves off-premises, companies that offer cloud computing services are winning. Google Cloud, with its third-largest market position, grew revenue by 29% and posted an operating margin of 11% in the second quarter.

Through its Waymo segment, Alphabet aims to bring fully autonomous driving to the masses. Although a riskier and more uncertain endeavor, this is yet another potential growth vector that could propel the business forward.

2. Financial position

There are very few companies that possess the financial strength of Alphabet. His finances are in perfect shape.

This is one of the most profitable businesses on the face of the planet. In Q2, Alphabet reported net income of $23.6 billion, which translated into a fantastic net profit margin of 28%. Even in 2022, a difficult time for the digital advertising market, the company still posted a margin of 21%.

Investors needn’t worry that Alphabet is facing financial trouble. That’s because, as of June 30, it had a net cash position of $87 billion on its balance sheet.

3. AI push

The boom in artificial intelligence (AI) has taken certain companies to new heights. But investors shouldn’t forget that Alphabet was already using the technology as far back as 2001 in Google Search.

These days, virtually all of the company’s various products and services have AI built into them in one form or another, whether it’s Maps, YouTube, Gmail, or Google Cloud, to name a few examples. Alphabet has the ability to introduce new features to a user base of billions of people, a broad distribution that is a key advantage.

Alphabet will invest at least $12 billion per quarter in capital expenditures, mostly to build additional technical capacity related to AI.

4. Network effects

Alphabet has perhaps one of the widest economic moats in the world. Since this is a platform company, network effects supports its competitive position.

Google search becomes more powerful as more information and data is created, which attracts more internet users who want to access it. And that engagement is valuable to advertisers.

Plus, with so much content for anyone’s interests, it’s no surprise that YouTube has become such a popular streaming option. As more viewers spend more time on the service, content producers are incentivized to create even more.

5. Compelling assessment

Despite its impressive performance, the stock is trading at a the forward price-earnings ratio from 20.8. That’s a discount to the broader S&P 500, which doesn’t make sense to me because Alphabet is a much better-than-average company out there.

This valuation makes Alphabet the cheapest stock among all the Magnificent Seven constituents. This is yet another reason to buy stocks.