The technology sector has seen more than its share of volatility and sell-offs over the past year, and yet some tech stocks are managing well against the headwinds of potential interest rate hikes, fears around inflation, wage hikes, and worker shortages. For instance, Alphabet's (GOOG -0.02%) (GOOGL 0.10%) full-year 2021 results point to a company experiencing continued strong growth, especially in relation to its FAANG counterparts. Moreover, the company's improving profitability profile could signal an encouraging outlook as we head further into 2022.

Alphabet's stock price is down for the year so far, but compared to the tech sector overall, it's doing far better and its outlook is promising. Let's explore why Alphabet presents a unique opportunity for investors in 2022.  

A person is live streaming a video on a mobile device.

Image source: Getty Images.

Streaming is a hidden weapon

There is a multitude of streaming services available today, leaving some customers overwhelmed by the choices. AppleAmazon (AMZN 6.19%), Walt Disney, Comcast, and ViacomCBS all offer streaming platforms. And then, of course, there is the streaming veteran Netflix (NFLX 0.01%). Alphabet's video-sharing website YouTube's full-year 2021 results highlight how it's outpacing all this competition in terms of revenue growth.

For the full year 2021, YouTube generated $28.8 billion in revenue, an increase of 46% year over year. By comparison, Netflix generated $29.7 billion in revenue and 19% year-over-year growth. Just in 2021's fourth quarter, YouTube generated $8.6 billion in revenue compared to Netflix's $7.7 billion. Much faster growth and more revenue illustrate how YouTube is a top competitor in the streaming market.

It's important to note that some of this growth can be attributed to the pandemic and may not be repeated in 2022. The COVID-19 environment gave creators an opportunity to connect with pandemic-impacted audiences, and it brought on an entire wave of new creators looking for something to do during lockdowns. However, the results do underscore that the growth in original content creation on YouTube far surpassed that of Netflix.

And while YouTube has become comparable in size to Netflix in terms of absolute dollars, remember that this is just one of Alphabet's business segments.

The cloud wars are heating up

Another business segment Alphabet is generating strong growth in involves the trend of companies increasingly relying on data to drive business decisions. A critical component of data synthesis and aggregation is cloud computing. And the public cloud market is dominated right now by Amazon Web Services (AWS), Microsoft's Azure, and (to a lesser extent) Google Cloud. 

For the full year 2021, Alphabet's cloud platform generated $19.2 billion in revenue, which represented 47% year-over-year growth. By comparison, AWS generated $62.2 billion and produced 37% year-over-year growth. Alphabet's cloud business is growing faster than AWS, but it's not yet generating a profit. It reported an operating loss of $3.1 billion in 2021. Meanwhile, AWS is generating a 30% operating profit margin and fueling much of the company's overall profits right now. 

Although Google Cloud is not yet profitable, the company is making great progress in trimming its losses here. For the full year 2020, Google Cloud lost $5.6 billion on revenue of $13.1 billion (a 43% operating loss margin). Google Cloud's operating loss margin was 16% for the full year 2021.    

Gartner predicts that worldwide spending on public cloud services will increase from $243 billion in 2019 to $692 billion by 2025, representing a 16% compound annual growth rate (CAGR). And as software companies like Snowflake that rely so much on cloud services keep growing, they start to spread out their service contracts with multiple cloud providers, giving third-place Alphabet ample opportunity to gain market share.

Keep an eye on valuation

During times of economic uncertainty, it's paramount for investors to keep an eye on the underlying fundamentals. For Alphabet, the company's top-line revenue growth is certainly impressive. But more impressive is the company's profitability. In 2020, Alphabet reported net income of $40.3 billion on total revenue of $182.5 billion. In 2021, net income increased to $76 billion on total revenue of $257.6 billion. Alphabet's profitability margin jumped from 22% to 30% in just one year. These increased profits provide Alphabet with greater flexibility to reinvest in growth levers such as the cloud.

Given the rising demand for cloud computing, coupled with the explosive growth in streaming, Alphabet appears well-positioned to battle its FAANG counterparts. Moreover, the company's flagship advertising business generated $209.5 billion in total revenue in 2021, which is roughly 82% larger than Meta Platforms' advertising stream. Although Apple is currently the world's largest company by market capitalization, it does not appear to have nearly as many diverse revenue streams as Alphabet, nor is it growing at comparable rates.

Alphabet stock currently trades at 7.3 times its trailing-12-month sales, which is the lowest price-to-sales multiple the company has traded at since December 2020. The company's impressive and improving profitability metrics are particularly encouraging to see. The small drop in Alphabet's stock price year to date (about 6%), presents a unique opportunity for investors to buy at a discount before the next run-up gets underway.