Is Alphabet the Best FAANG Stock to Bet on This Decade?

The "FAANG" companies were some of the hottest stocks of the last decade. The acronym stands for Facebook (which has since changed its name to Meta Platforms), Amazon, Apple, Netflix, and Google, (which changed its name to Alphabet (GOOG -1.10%) (GOOGL -1.23%)). Besides Meta Platforms, all the FAANG stocks have handily beaten the market for the past 10 years, delivering phenomenal returns for their long-term shareholders.

But in the next decade, I think Alphabet will be the best FAANG stock to own. Here's why. 

Dominance in search with strong competitive advantages

All five FAANG businesses have strong competitive advantages. But none besides Alphabet has a key offering with the scale and dominance of Google Search. It has approximately 90% market share for internet searches worldwide and over 4 billion regular users, making it the most used single product on the planet. With all this usage comes a boatload of advertising revenue -- close to $40 billion last quarter alone. Search marketing has extremely high margins at scale and accounts for the vast majority of Alphabet's $78.5 billion in trailing 12-month operating income. A majority of the world's population will become habitual internet users in the coming decade, and the number of people using Google Search should get close to 8 billion.

But how did Google come to dominate the search market? It built a better search product than key competitors like Yahoo!. But over the last 15 years, Google has made some highly intelligent moves to defend its market position, making it virtually impossible for any competitors to take share. In 2008, it launched the web browser Google Chrome, which now has roughly 66% of the browser market. Google Workspace, the cloud-based file-sharing platform, has 3 billion users, the majority of which are free. Android, the mobile operating system that Alphabet owns, has more than 70% of the global market share in smartphones.

Alphabet may make some money from these individual businesses, but the reason it wanted to own all these consumer internet platforms was so that it could leverage those positions to make Google Search the default search engine for billions of people. If a rival wanted to dethrone Google, it would not only have to make a better search product -- it would also have to access consumers through platforms that Alphabet owns. That would be a tall order, to say the least. This gives Google Search a strong competitive advantage that should enable it to retain market share for many years into the future.

Future growth from Google Cloud, YouTube, and Waymo

Search may be the vast majority of Alphabet's business today, but it has three subsidiaries that could be strong contributors to revenue growth this decade: Google Cloud, YouTube, and Waymo.

Google Cloud is one of the largest cloud infrastructure providers in the world with an approximately 10% market share. The cloud industry is still in its early innings, and according to projections from Market Research Future, the size of the cloud infrastructure services market alone will have a value of just under $450 billion by 2030. If Google Cloud can maintain its 10% market share the business will be doing close to $45 billion in annual revenue within the next five-to-seven years. The segment is not profitable today, losing almost $1 billion a quarter, but should start to achieve operating leverage as it reaches a greater scale within the next few years.

YouTube is the most popular streaming video service on the planet, serving over 2 billion people globally through all sorts of internet devices. The segment books around $7 billion in advertising revenue a year. As the most popular connected TV application in the world, YouTube will enjoy a steady tailwind as advertisers move more of their marketing budgets from traditional linear television to streaming services over the next decade. By 2030, it would be shocking if YouTube's annual advertising revenue had not reached $50 billion -- at least -- making it another significant growth driver for Alphabet's business this decade.

Alphabet's self-driving subsidiary Waymo is the clear leader in autonomous vehicles, according to industry experts. The segment is barely generating revenue right now, but its self-driving taxis are operational in three U.S. cities. If Waymo can combine Alphabet's artificial intelligence, mapping, and cloud capabilities to win the self-driving taxi market, the business has the potential to experience explosive growth over the next 10 to 20 years. While this is a more speculative bet than the growth at Google Cloud and YouTube, Alphabet works on ambitious research projects like Waymo with the potential to become huge winners over multidecade periods.

Alphabet stock is cheap at today's prices

Alphabet has a clear path for revenue growth from its search engine, its cloud business, and YouTube. Typically, businesses with durable growth prospects trade at premium valuations, but that is not the case with Alphabet today. With a market cap of around $1.2 trillion, Alphabet trades at a trailing price-to-earnings (P/E) ratio of 18, which is actually below the market average of 21.

For a business that has a strong track record of growth and that is still investing heavily in initiatives that have not yet reached profitable maturity like Google Cloud and Waymo, this looks like a highly attractive price. That's why I would pick Alphabet as my top FAANG stock to own this decade.