It has been a rough year for stocks in general, but especially so for tech stocks. Down 34% year to date (as of Dec. 14), Google's parent company Alphabet (GOOG -0.02%) (GOOGL -0.09%) is no exception. There's no telling how Alphabet's stock may perform in the near future, but at current price levels, its long-term potential makes it a buy heading into 2023.

Just a bump in the road for Alphabet

Many companies have seen their stock price drop this year as a byproduct of a bear market and it's no fault of their own. However, Alphabet's stock has been hit a bit harder because of an ad revenue slowdown. There is no question that Google advertising is Alphabet's money maker. Of the $69.1 billion in revenue it made in its 2022 Q3, Google advertising was responsible for over $54.4 billion. This marked a 2.5% increase year over year, but it's considerably less growth than the roughly 43% year-over-year growth it experienced during its 2021 Q3.

When you invest in a business that relies as heavily on advertising as Alphabet does, it's important to understand that digital advertising is cyclical. When the economy is booming and there's plenty of money to go around, companies don't mind spending lots on advertising. When the economy is down and money is tight, advertising is usually one of the first places budget cuts happen.

This slowdown in ad revenue growth shouldn't deter investors, given the macroeconomic conditions.

Ushering in a new era of search

Looking past its flagship Google Search, Alphabet's growth will depend on how successful it can be in the e-commerce advertising space. If you're like a lot of people, you've spent countless time online browsing different websites looking for specific items to buy. Google wants to be the first place everyone starts their online shopping journey, no matter who they buy from in the end.

U.S. e-commerce was less than 5% of retail sales in 2011, and by 2021, it had jumped up to 14%. As we keep shifting toward e-commerce, there will undoubtedly be more e-commerce-related searches and more money spent on e-commerce-related digital advertising. This e-commerce shift could possibly expand the digital ad market from around $180 billion in 2021 to $410 billion by 2026.

Because of its dominance in e-commerce, an estimated 61% of online U.S. shoppers use Amazon as the starting point for searches of consumer goods.  However, Google has begun taking steps to better compete in the space. It stopped requiring merchants to advertise in order to have their products come up in shopping searches, and it partnered with Shopify to streamline search listings for its merchants' products.

A piece of the cloud pie

Google Cloud is one of Alphabet's fastest-growing segments. Although it lags considerably behind Amazon Web Services and Microsoft Azure in market share at 11% (they have 34% and 21%, respectively), its more than 37% year-over-year revenue growth and 1% market share increase is a good sign for investors.

The cloud industry is growing rapidly. In 2021, the global cloud market was valued at around $405.6 billion. This year, it's projected to be over $480 billion, and by 2029, it's expected to reach over $1.7 trillion. A large part of this growth is projected to happen in Europe, and Google has begun setting itself up to take advantage. In August 2021, Google Cloud invested $1.2 billion to build data centers in Berlin, Germany, to expand its cloud infrastructure.

As the cloud industry pie continues to expand, Google Cloud stands to gain a good amount at current growth rates. 

Commitment to growth

As the world's fourth most valuable public company with a market cap of over $1.2 trillion, it may be hard to view Alphabet as a growth stock, but the company's culture has been built on growth, innovation, and a willingness to take on ambitious projects. Some projects work out, some don't; that's just how business goes. But as a long-term investor, you have to appreciate a company that hasn't shown any signs of being complacent, even with its generational success.

Alphabet's price-to-earnings (P/E) ratio -- which essentially tells you how "expensive" a stock is -- is down over 44% in the past five years. For perspective, Apple and Microsoft's stock prices are down over 20% and 23% year to date, respectively, yet their P/E ratios have increased.

AAPL PE Ratio Chart

DATA BY YCharts

With that in mind, this could be an ideal time to begin or start increasing your stake in Alphabet for the long run.