An examination of the largest companies in the world shows they tend to have one commonality: Each fundamentally changed how their customers go about their daily lives. Apple revolutionized computers and communications with its PCs and its iPhone; Microsoft standardized the PC operating system, video gaming, and office operations. Amazon completely changed how so many of us shop as well as revolutionizing delivery services around the world.
But I'd argue that Alphabet (GOOG 0.56%) (GOOGL 0.66%) had as great (or even greater) an impact on computers, communications, offices, and retail than any of the already referenced companies. Its Google search engine made the internet practical and paved the way for these other companies to thrive. With its easy interface, Google allowed users to find what they were looking for more accurately and more efficiently.
Alphabet, which began as Google 25 years ago and launched its initial public offering in August 2004, has been rewarded with ever-growing revenue for its efforts. Its shareholders have also profited significantly over that time.
If you were one of the lucky few to buy into that IPO back in 2004 and were smart enough to hold onto the stock until now, how much would you have? Let's do some calculations, find out, and maybe even discuss whether this is still a growth stock worth holding onto.
Alphabet has been a successful investment for many
If you had invested $1,000 in Alphabet (then Google) stock at its IPO and kept it there till now, you'd have roughly $52,830. That's incredible growth in just under two decades, especially in comparison to the broader market. A $1,000 investment in an S&P 500 index fund then would be $3,866 now and one in a fund representing the tech-centric Nasdaq Composite index would be worth $7,163.
Data by YCharts.
Such an investment in the tech giant that early on likely set those investors up for life.
To be clear, it wasn't a smooth ride up. Alphabet lost 65% of its value at the depths of the Great Recession in 2008. It also fell nearly 50% from its all-time high at the end of 2022 over concerns about slowing advertising revenue growth. It still hasn't fully recovered from that most recent drop, but it's getting there.
Along the way, Alphabet made a few acquisitions that seemed questionable at the time. It bought YouTube in 2006 for $1.65 billion, a deal that many were convinced Alphabet overpaid for. YouTube generated $7.7 billion in revenue for Alphabet in just one quarter in 2023, showing what a bargain this segment of its business ended up being.
Another acquisition that may be a bargain was its purchase of DeepMind, an artificial intelligence (AI) start-up it purchased for a reported $500 million (actual price unconfirmed) in 2014. As the battle for AI supremacy ramps up, the technology acquired from this purchase may prove invaluable, as it has already helped improve users' YouTube experience and enhanced Alphabet's Google Cloud segment.
Alphabet is a lesson in long-term investing
So what are some takeaways from Alphabet's meteoric rise over the past two decades?
A big one to remember is that, if a company is fundamentally changing how we live, don't get distracted by short-term movements or decisions. Plenty of times it seemed like the sky was falling with Alphabet, but many of those concerns proved to be false alarms or minor short-term headwinds. That's not to say the occasional concern wasn't real of valid, it's just to point out that Alphabet management was able to navigate those issues well and reach a point where the company is now entrenched as the tech backbone of this world.
The stock looks like a great buy now
So, it's clear that Alphabet has had a great run, but is it worth buying now?
As already mentioned, Alphabet's next great growth industry is AI (artificial intelligence). Alphabet has been heavily investing in AI for years and has billions in resources dedicated to advancing this technology. While some in the media as well as some analysts have created an impression that Alphabet is falling behind when it comes to AI, I'm not worried. Over the long term, Alphabet's efforts will show it was in the race all along.
As for whether now is a good time to buy the stock, admittedly Alphabet stock is not nearly as cheap as it was at the start of the year. Still, with it only trading for 23 times forward earnings, Alphabet isn't carrying a massive premium.
GOOGL PE Ratio data by YCharts
With Wall Street analysts projecting a strong 2024 for Alphabet, including 11% revenue and 18% earnings growth, long-term investors are fine to purchase more Alphabet shares at these levels. While Alphabet will have a much harder time transforming $1,000 into nearly $53,000 over the course of the next 19 years, its growth and its AI market opportunity should allow it to beat the market over the coming decade.
Alphabet is still a great stock to place in a bedrock position in your portfolio.
