Shares of Alphabet (GOOG 0.36%) (GOOGL 0.37%) have soared over 5,000% since the company went public in 2004. In that time, the tech giant snapped up more than 90% of the search engine market, became the biggest name in online video sharing, and used its popular platforms to create a highly profitable digital advertising business.
Brands such as YouTube, Google, and Android have made it challenging for most consumers to go a single day without using an Alphabet product. The company's dominance in tech and meteoric rise over the years might suggest the best time to invest in Alphabet has long passed.
However, tech is an ever-expanding sector that has a history of rewarding its most prominent players with consistent growth over the long term. Alphabet still has much to offer new investors, with its shares up 55% in 2023 alone.
Here's why it's not too late to buy Alphabet stock, with shares of the company being a screaming buy ahead of the new year.
Massive growth potential with Google and YouTube
As of 2022, Alphabet had nine products with over 1 billion users. Seven of those products are under its Google brand, with Search attracting more than 3.6 billion consumers. YouTube has hit over 2 billion users.
The success of these platforms and their massive user bases have granted Alphabet almost endless opportunities to profit from the $680 billion digital ad market. The industry hit some roadblocks last year, with macroeconomic headwinds curbing ad spending. However, Alphabet's third quarter of 2023 earnings suggest the worst market declines are over. The company's revenue rose 11% year over year, beating Wall Street forecasts by $980 million. The quarter benefited from an 11% increase in Alphabet's Google Search segment and a 12% spike in YouTube ads.
In addition to advertising, Google and YouTube have promising earnings potential in artificial intelligence (AI). Over the last year Alphabet has heavily invested in the high-growth sector and plans to launch a large language model in 2024 called Gemini. The powerful model is based on massive data sets and is expected to be highly competitive with OpenAI's GPT-4.
Gemini could be a lucrative step for Alphabet's journey in AI, providing it with the tools to offer more efficient and pointed advertising, create a Search experience closer to ChatGPT, bring AI upgrades to its various productivity and cloud services, and improve video recommendations on YouTube.
Google and YouTube have the dominance and growth prospects that will likely keep Alphabet flourishing for decades.
Alphabet is the biggest bargain in AI
Bullish investors have rushed to buy AI stocks in recent months, with data from Grand View Research showing the market hit roughly $137 billion in 2022 and is projected to expand at a compound annual growth rate of 37% through 2030. Nvidia, Amazon, and Microsoft have been some of the biggest winners in AI this year, slightly overshadowing Alphabet. However, the Google company appears to be a sleeping giant in the space for now, making its stock a bargain compared to other AI stocks.
Data by YCharts
The chart above shows that Alphabet's price-to-earnings ratio and price-to-free cash flow are by far the lowest among some of the biggest names in AI. The figures indicate Alphabet's stock offers the most value out of these four companies, and is one of the cheapest ways to invest in AI.
Over the last five years, Alphabet's quarterly revenue has risen 95%, with operating income soaring 160%. Meanwhile, the company is a cash machine, hitting over $106 billion in free cash flow this year and $77 billion in cash from operations. The tech giant might not be as far in AI as some of its competitors, but it has the funds to keep investing in its business to become a major player in the market over the long term.
With an ad business that has returned to growth and a lucrative outlook in AI, it is definitely not too late to buy Alphabet stock.
