After experiencing the worst market downturn in more than a decade, the stock market has staged a remarkable recovery in 2023, with each of the major market indexes climbing more than 20% from their recent lows. This has caused some on Wall Street to call the beginning of the next bull market, at least by that measure.
Yet even as some stocks have shaken off last year, the impact of the downturn lingers. Digital advertising has yet to fully recover from the economic headwinds that had marketers reining in spending, and Alphabet (GOOGL 0.72%) (GOOG 0.82%) was one of the companies hit the hardest. The return of ad spending has been slow to appear, but there are signs digital advertising is on the rebound.
While that's a positive development for the company, there are plenty of reasons to buy Alphabet stock before this bull market really starts to run.
Image source: Getty Images.
The search is over
Artificial intelligence (AI) has created a lot of buzz in 2023. Many on Wall Street are expecting significant productivity gains resulting from the broad adoption of generative AI.
Alphabet's Google has a long history of employing AI algorithms to provide more accurate search results. This is an area the company dominates, commanding 93% of the worldwide search market.
This, in turn, fuels the company's industry-leading adtech business, which accounts for nearly 30% of global online ad revenue, according to data compiled by industry trade publication Digiday. Attempts to unseat Google from its leadership in the space have thus far proved unsuccessful, even as competition mounts.
Furthermore, recent results of several digital advertisers suggest that the spending freeze brought about by the downturn is beginning to thaw. Once spending begins in earnest, as the industry leader, Google has the most to gain.
Head in the clouds
One of the defining characteristics of Google Cloud has long been its rapid growth. This continued in the first quarter, as its cloud computing business grew 30% year over year, outpacing Microsoft Azure and Amazon Web Services (AWS), which grew 27% and 16%, respectively, according to research firm Canalys.
The company will likely retain its title once the books are closed on the second quarter. With results for two of the "big three" cloud providers in for the calendar second quarter, Google Cloud continues to maintain its lead, generating 28% year-over-year growth, while Azure came in at 26%. Amazon will report in early August, but unless AWS experienced a much larger-than-normal growth spurt, its growth rate likely lagged behind its two main rivals in the hyperscale cloud space.
It's worth noting that the major cloud infrastructure providers, including Alphabet, have long integrated AI into their cloud offerings, which will no doubt be the most cost-effective way for most businesses to use generative AI.
The AI wildcard
The excitement surrounding generative AI has been palpable this year, which has helped drive the bull market run. Fueling this excitement is the potential for productivity gains resulting from the capabilities of these advanced algorithms, but estimates vary widely.
A couple of the more conservative estimates come courtesy of investment banks Morgan Stanley and Goldman Sachs, which suggest the productivity gains will add $6 trillion and $7 trillion, respectively, to the economy by 2030. Cathie Wood's Ark Investment Management is among the most bullish prognosticators, believing AI software will generate $14 trillion by the decade's end.
What remains pretty clear is the companies with the largest data sets and most effective channels for delivering these cutting-edge AI models will be among the big winners. As one of the largest (and fastest-growing) cloud providers -- with a long history of integrating AI -- Alphabet is well positioned to gain its share of the burgeoning generative AI market.
Like there's no tomorrow
Investors who buy Alphabet shares now are getting a lot of bang for their buck. The company is the undisputed leader in global search and worldwide digital advertising, and a leading provider of cloud infrastructure services. Let's not forget YouTube, which leads all streaming services in terms of overall market share, according to Nielsen.
With all that going for it, Alphabet stock is still selling for a song, at just 6 times sales and 5 times next year's sales, which I'd argue is a steal for all its growth potential.
That's why I believe investors should be buying Alphabet stock like there's no tomorrow and holding it forever.
