Nasdaq correction: 1 no-brainer stock to buy on this dip

We hit another late summer correction in the stock market. After going on a monster run in 2023 and early 2024, Nasdaq 100 the tech growth index recently went through a bearish correction. It is currently down 9% from the all-time highs reached in early July.

A stock is down more than twice the Nasdaq 100 index Alphabet (GOOG 1.82%) (GOOGL 1.79%). The tech giant and parent of Google Search, YouTube and Google Cloud has dropped more than 20% in just a few months. Investors are worried (again) about losses in market share and the battle for supremacy in artificial intelligence (AI), which could disrupt Google’s historic money generators.

These worries are overstated and represent a discounted buying opportunity for one of the best companies in the world. Here’s why Alphabet is a no-brainer buy today.

Win or lose in AI?

The rise of AI chatbots and new search engine functionality has threatened Google Search’s dominance. OpenAI has ChatGPT, as well as many imitators innovating and trying to disrupt Google’s cash cow, which still accounts for the majority of its parent company’s profits. Microsoft is one of OpenAI’s biggest partners and has incorporated the technology into the Bing search engine, which is the default engine of the Edge browser (the browser that replaced Internet Explorer).

On desktop computers — where Microsoft has the largest market share — Bing has started to gain market share on Google Search. Google Search’s estimated market share fell below 80% for the first time in 15 years in recent months. Bing is the competing product stealing market share. While this is troubling, investors need some context as to why Google “only” has an 80% market share in desktops today.

Microsoft is spending tens of billions of dollars on internal AI products and investing in OpenAI. The Edge browser defaults to Bing and is the default browser on Windows devices. Desktop is also becoming less important as mobile searches bring more profits to search engines. On mobile, Google has almost 100% market share if you exclude the Yandex search engine in Russia (a market where Google does not compete).

Given the competitive edge Microsoft has on desktops and the aggressive push it has made to try to gain market share for Bing, I think investors should be impressed that Google still has such a large market share . Alphabet isn’t resting on its laurels either. In new areas of AI, Alphabet has demonstrated the ability to copy or improve upon any of the innovations coming out of OpenAI.

There are a lot of new competitors trying to beat Google. So far, it looks like Google has defended its position pretty well. This makes me wonder if Google is actually losing in AI. With revenue up 14% from last year, it’s more plausible that Alphabet will win.

Superb financial performance

Alphabet’s financial results were nothing short of stunning. Its revenue reached $328 billion in the past 12 months, with growth coming from all aspects of the business. Let’s not forget the promising Google Cloud segment, which sells Alphabet’s AI innovations to third parties. Google Cloud revenue hit $10 billion last quarter, and it’s finally turning a profit.

Overall, Alphabet’s operating income is $98 billion and should eclipse $100 billion in 2024. This was driven by the growth of Google Cloud, YouTube advertising and the still-important Google search segment. That segment alone generated $48.5 billion in revenue last quarter. That’s almost $50 billion in revenue in just three months — unbelievable.

GOOGL operating income (TTM) data from YCharts.

The stock is undervalued

After this recent reduction, Alphabet stock now trades at a price-to-earnings (P/E) ratio of 21.3. The wider S&P 500 the index trades at an average P/E of 28.6. The Nasdaq 100 trades at an average and higher earnings multiple of 41.

That’s way too cheap for a company growing double-digit revenue. In addition to this growth, Alphabet’s management is returning more and more cash to shareholders. It now has a small dividend yield of 0.27%, with plenty of room for growth in the coming years. Share buybacks have reduced shares outstanding by 11% over the past five years.

Add it all up, and Alphabet stock is a clear buy, no doubt, at these prices.