As the home of such products as Google, YouTube, Android, Google Cloud, and more, Alphabet (GOOG 1.25%) (GOOGL 1.27%) is an internet giant that will likely remain a dominant company long into the future.
The company's stock sank 39% throughout 2022 alongside a tech sell-off. However, optimistic investors have pumped up Alphabet shares by over 13% since Jan. 1 as the market gradually recovers. The Google parent is not out of the woods yet, with a looming recession likely to continue burdening advertising revenue.
However, Alphabet's stock remains an excellent long-term buy thanks to its significant market share in multiple industries and plans to reduce operating costs.
Paring down costs and shifting focus
On Jan. 20, Alphabet revealed it would eliminate 12,000 workers to cut costs. The move comes as multiple other tech companies have done the same, with Microsoft letting go of 10,000 employees and Amazon 18,000.
Alphabet's job cuts amount to about 6% of its global workforce, with CEO Sundar Pichai explaining the company's employee count expanded too rapidly during the pandemic when revenue from digital services soared. However, macroeconomic headwinds in 2022 led worker growth to outpace revenue growth.
While Alphabet's priority on boosting profits is positive, its recently proclaimed focus on artificial intelligence (AI) is especially promising for its long-term success. The desire to expand in AI comes after OpenAI's ChatGPT launched in November 2022, offering a new way to search the internet. It is rumored ChatGPT will be incorporated with Microsoft's Bing in the near future.
While Alphabet has invested in AI in the past, this new competitor has motivated the company to make the technology a larger part of its business. According to Grand View Research, the AI market was worth $93.5 billion in 2021 and is projected to expand at a compound annual rate of 38.1% through 2030.
With over $100 billion in net cash and $55 billion in year-to-date net income earned, Alphabet has the funds to invest heavily in the burgeoning industry. While the company has had trouble entering new markets in the past, with the sunsetting of cloud gaming platform Google Stadia only the latest example, Alphabet's continued success in cloud computing with Google Cloud proves the company is capable of more than advertising.
Impressive long-term growth
Despite a sell-off in 2022, Alphabet shares have risen 71% over the last five years. Meanwhile, revenue has skyrocketed 88% to $257.6 billion, and operating income is up 162% to $78.5 billion in the same period. As growth stocks go, Alphabet does not disappoint over the long haul.
Moreover, the tech company has made significant headway in cloud computing. Google Cloud revenue has risen 373% from $4.1 billion in 2017 to $19.2 billion in 2021. In Alphabet's latest quarter, Google Cloud reported the most year-over-year revenue growth in the cloud computing industry, rising 37.6%. Comparatively, industry leaders Amazon and Microsoft saw cloud-computing revenue growth of 27% and 20% in the same quarter.
Alphabet suffered from its dependency on advertising in 2022 as businesses slashed budgets and global ad spending slipped. However, economic headwinds are temporary, and the company is slowly diversifying in the meantime.
With a price-to-earnings ratio of about 18 compared to Amazon's 77 and Microsoft's 26, Alpahbet's stock is trading at a bargain and is too good to pass up. The company has the cash to overcome a looming recession, is home to potent brands, and will likely continue growing well into the future. As a result, Alphabet shares -- still down 22% year over year -- are a must-buy.
