$1,000 doesn't buy what it used to. But investing is the best way to make it grow. If you have some uninvested money in an IRA, brokerage, checking account, or under a mattress, consider putting it to work for you.
The market, specifically high-growth technology companies, has been on a tear this year. The tech-heavy Nasdaq Composite is up 38% so far, making up for its 33% fall in 2022. It's natural for investors to be excited, but it's important to remember that the market also has risks. The enthusiasm around artificial intelligence (AI) has propelled several companies to new highs that fundamentals may not support.
For this reason, looking at companies you are comfortable investing in for the long haul is crucial. What if the market drops tomorrow? Is the company strong enough to come back and produce tremendous profits for investors in the future? Both Alphabet (GOOG 9.96%) (GOOGL 10.22%) and The Trade Desk (TTD 1.67%) should be strong enough to endure. Here's a closer look at why investors might rely on each of these tech stocks.
Alphabet's Google is still a superpower
In my last Alphabet article, I warned investors against counting out the King of Search. Alphabet's impressive earnings since then propelled the stock another 8% higher, but there is plenty of room for more profits for long-term investors. The report was impressive on the top and bottom lines, with a 7% increase in sales to $75 billion and a 29% operating margin despite the challenging advertising market.
The operating margin grew year over year (YOY), showing that one of CEO Sundar Pichai's major initiatives is working. Pichai has pledged to make the company 20% more efficient after it increased its workforce and operating expenses significantly during the stimulus boom following the onset of COVID-19.
Alphabet must become more agile to get AI initiatives from the research and development (R&D) phase to the market after being caught flatfooted by the release of ChatGPT. One way to do that, and reap financial benefits, is to reduce the number of voices in meetings.
The impression that Alphabet was behind competitors, like Microsoft, caused consternation on Wall Street, but Alphabet is definitely in the race. The company has several hot irons, like its large language model (LLM) chatbot Bard (which functions much like ChatGPT) and the next-generation conversational chatbot, LaMDA, which promises to be faster and more versatile. The initiatives have been in the works for years, and the competition from ChatGPT motivates Alphabet to go live to consumers.
Google Cloud also posted impressive numbers, rising 28% YOY to $8 billion in Q2. YouTube ads contributed another $7.6 billion in revenue, but growth has stalled to less than 1%. Management is trying to address this area of concern by pushing its answer to TikTok: YouTube Shorts. Investors should watch for progress in future earnings.
Alphabet stock has made an impressive comeback in 2023, with gains over 40%. And why not? Its results have been excellent. The stock is no longer "cheap," with a price-to-earnings (P/E) ratio of 27 (in-line with its average since 2019), so be sure to dollar-cost average to mitigate short-term risk. Even so, because of its organic growth, search engine dominance, and AI drive, Alphabet makes a compelling buy case.
The Trade Desk is 'what's next'
Some growth stocks have too much potential not to take notice. This is the case with programmatic advertising leader The Trade Desk. The days of clunky broadcast advertising are dwindling. Instead, advertisers are shifting budgets toward digital advertising on connected television (CTV), mobile and desktop displays, and video ads.
These programmatic ads work like this: A publisher sends out a bid request for open inventory, then the advertisers bid on the space using demand-side platforms (like The Trade Desk) based on how attractive that space is to their particular brand or product. It happens in a fraction of a second, and the advantages include better targeting, flexible budgeting, and data to measure effectiveness and other key performance indicators.
Statista estimates that over 80% of digital ads will be programmatic by 2027 and that the programmatic market will rise from $493 billion in 2022 to $725 billion in 2026. The Trade Desk is already excelling in this market.
The Trade Desk's revenue has nearly doubled over the last two years from $836 million in fiscal year 2020 to $1.6 billion in fiscal year 2022. As shown below, its weed-like revenue gains make it a quintessential growth stock.
TTD Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Sales rose 20% in Q1 fiscal year 2023. This is a slowdown over previous growth due to advertisers trimming spending, but still more than the overall industry, so The Trade Desk is growing its market share.
CTV is The Trade Desk's biggest money marker and growth area to do the expansion of ad-supported streaming services. International expansion is another fertile area for growth, making up only approximately 10% of The Trade Desk's sales.
The Trade Desk's stock has skyrocketed 90% this year; however, it still trades roughly 20% off its all-time high due to its drop in 2022. The company is not producing significant profits yet, but it is significantly cash-flow positive, has no long-term debt. Furthermore, it has $1.3 billion in cash and investments.
Anyone looking to invest $1,000, or any other amount, in growth stocks should consider these two advertising companies. Which is the best depends on your risk appetite. Alphabet is an industry power with less risk, while The Trade Desk has more potential upside. It would also be a savvy move to split the investment between both companies.
