Let's address the 800-pound gorilla in the room. At first glance, it might seem like hyperbole to recommend buying a stock and holding it forever, especially in the face of the ongoing uncertainty that grips investors and the potential for a recession or continuing bear market in 2023.
To be clear, no investor should buy stocks willy-nilly and ignore them even as the investment thesis changes. However, buying top-shelf stocks with the intention of holding forever -- barring such changes -- gives investors the best chance to achieve market-beating gains.
The ability to withstand short-term headwinds by taking a step back to look at the big picture -- and recognizing glaring opportunities -- can spell the difference between success and failure over one's investing career. One such opportunity the market is serving up right now is Alphabet (GOOGL 0.35%) (GOOG 0.37%).
Image source: Getty Images.
A myopic view
Like many stocks, the recent recession pounded the Google parent, with the stock plunging as much as 44% from its peak in late 2021. More recently, however, the technology company has defied the market rebound so far this year, weighed down by fears of increasing search competition from Microsoft (MSFT -1.84%), but things may not be what they seem.
Since the late-November emergence of ChatGPT, the chatbot fueled by artificial intelligence (AI), the conversational AI tool has caused quite a stir. The brainchild of start-up OpenAI, ChatGPT's capacity to write essays, summarize documents, and answer questions appeared groundbreaking, fueled by its uncanny ability to generate human-like responses. Microsoft quickly confirmed its intention to invest $10 billion in OpenAI and incorporate ChatGPT into its Bing search engine.
In response, Alphabet introduced its own chatbot -- Bard. Unfortunately, its debut was something of an embarrassment, marred by incorrect responses. This sent Alphabet stock plunging in response, as investors feared a reinvigorated Bing would steal market share from Google's dominant search.
The truth, however, isn't so cut and dry.
Fact or fiction?
It's important to note that for all its amazing ability to imitate a human being, ChatGPT suffers from the same shortfalls that marked Bard's launch -- it merely regurgitates information it has acquired elsewhere, without any awareness regarding whether the information is true or false. OpenAI CEO Sam Altman admitted as much in a tweet:
ChatGPT is incredibly limited, but good enough at some things to create a misleading impression of greatness.
-- Sam Altman (@sama) December 11, 2022
it's a mistake to be relying on it for anything important right now. It's a preview of progress; we have lots of work to do on robustness and truthfulness.
He went on to say that while it offered "fun creative inspiration," relying on it to provide factual information was, "not such a good idea."
What's more, in the wake of ChatGPT's admittedly remarkable debut, a tidal wave of reports has emerged detailing the chatbot giving incorrect responses, insulting users, and in some cases becoming argumentative and hostile.
This exposes a dirty little secret about even the most advanced chatbots -- they are unable to discern fact from fiction, making them far from infallible. This suggests Alphabet's sell-off following Bard's high-profile blunder represents a compelling opportunity for astute investors to buy the stock at a discount.
Just the facts
While some fair-weather Alphabet investors have jumped ship over fears that ChatGPT might help Microsoft improve its search utility -- that future is far from certain. Instead, let's look at the facts.
Google is the worldwide leader in search, with a dominant 93% of the market. Bing's share? About 3%. While it's possible Bing could improve on Google's search algorithms, there's simply no evidence to suggest it has made any headway thus far.
The company's dominant search fuels its industry-leading digital advertising, capturing roughly 30% of worldwide digital ad spending, according to trade publication Digiday.
Plus, Alphabet has a long and distinguished history in the area of AI, giving the company a number of distinct, long-term advantages. Baird analyst Colin Sebastian summed it up nicely when he addressed the ongoing battle for generative-AI (gen-AI) dominance. "The marathon is still in the early stage," Sebastian wrote in a note to clients. "Over the longer haul, Google has competitive advantages in scale, engineering, cloud resources, and AI capabilities, putting them in a good position to be a net beneficiary of gen-AI."
This represents a compelling opportunity for investors, as Alphabet is selling for a song. The stock is currently trading for four times sales, its cheapest valuation in nearly a decade.
Don't get me wrong. I own Microsoft stock and I'm bullish on its future -- I simply don't believe Google's decades of search dominance will suddenly evaporate simply because Microsoft has a shiny new toy.
Ignore the hype. Strongly consider buying Alphabet.
