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Better Buy: Alphabet vs. Twilio

By Anders Bylund – May 29, 2020 at 9:17AM

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You can't go wrong with either one of these high-quality tech stocks, but one stands head and shoulders above the other in the long run.

Successful investments come in many different forms. I added Twilio (TWLO 1.61%) to my real-money investment portfolio on March 10. The cloud-communications specialist's stock has more than doubled in less than two months. My Alphabet (GOOG -0.73%) (GOOGL -0.68%) holdings have nearly quintupled for me, but that's over a period of nearly 10 years. The Google-parent's gains are more of a slow burn than an explosive jump.

So which one of these winning tech stocks would I recommend that you buy today? Let's take a look.

Several stacks of coins rest on a laptop keyboard while a robotic hand manipulates the computer's screen.

Image source: Getty Images.

The case for Twilio

Twilio helps other businesses create tailor-made voice, video, and text communication services. The COVID-19 pandemic accelerated Twilio's ascent into the mainstream because cloud-based voice and video connections are all the rage in this era of work-from-home policies. So it's no surprise to see Twilio's stock surging during the coronavirus crisis, but what comes next?

In many cases, the customers who are building Twilio's technology into their business apps today are getting their first taste of custom-built cloud communications while tackling a major health crisis. The pandemic will eventually fade, but the lessons that were learned and new habits that were formed during this period will remain.

Twilio was an exciting long-term growth investment in February. The investment case only grew stronger in the spring. Yes, share prices more than doubled in two months -- and Twilio earned every penny of that increase.

A yong woman smiles and cheers while tossing hundred-dollar bills up in the air in front of an open laptop.

Image source: Getty Images.

The case for Alphabet

Among all the blue chip stocks in today's market, Alphabet is the deepest and safest shade of azure. While best known for its Google-branded online search and advertising services, or maybe the Android mobile-phone platform, or perhaps short-form video service YouTube, Alphabet has already sown the seeds of a long-term future where most of its business is done offline.

I'm talking about self-driving vehicles, advanced medical research, balloon-based broadband networks, and molten-salt energy storage facilities. Those are just the relatively mature ideas among Alphabet's many moonshots, the ones that already graduated from the research lab to become revenue-generating business operations.

Don't get me wrong -- Google is still the lifeblood of Alphabet's day-to-day operations. That division accounted for 99.6% of Alphabet's total revenues in the first quarter of 2020. That will change in the long run as the Waymo self-driving platform, Loon wireless networks, and Verily life sciences grow into their ambitious breeches. Twenty or 30 years from now, I'm not 100% sure that the Google name will even matter anymore -- and that's what Alphabet's planning for.

This company's not only prepared to change dramatically over the long haul, but it's often also a driving force behind the market changes. That's how you build a business for the next 50 or 100 years.

The final verdict

Both Alphabet and Twilio are trading near their all-time highs right now.

  • Alphabet's two stock classes are priced at roughly 30 times trailing earnings, which seems reasonable for a tech giant whose top-line sales are growing at an annual clip of approximately 20%.
  • Twilio's valuation ratios would drive a value investor dizzy, and the company is choosing to keep its profit margins low or negative in order to maximize revenue growth.

We're looking at two very different schools of thought here, and a balanced investment portfolio should have room for both of these tickers.

But if I could only choose one of these stocks to buy today and hold forever, Alphabet would be it. I'll gladly pocket whatever returns Twilio can give me over the next five or 10 years, but the company's future grows murky beyond that relatively short period.

Alphabet is the kind of wealth-building legend you can expect to pass on to your grandkids several decades down the road. And if you doubt Alphabet's ability to generate market-crushing returns over long periods, take a look at this chart. If you invested $10,000 in Google when the stock hit the public market, you'd be sitting on a return of $284,000 so far:


GOOGL data by YCharts.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Alphabet (A shares) and Twilio. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Twilio. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$97.50 (-0.68%) $0.67
Alphabet Inc. Stock Quote
Alphabet Inc.
$98.09 (-0.73%) $0.72
Twilio Inc. Stock Quote
Twilio Inc.
$70.11 (1.61%) $1.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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