Tech stocks surged in 2023, with the Nasdaq-100 Technology Sector index up 67% over the last 12 months. Excitement over budding markets like artificial intelligence (AI) and cloud computing has made Wall Street bullish, as both have significant growth potential in the coming years.
As a result, a company like Alphabet (GOOG 1.77%) (GOOGL 1.77%), with its vast financial resources and dominance in multiple areas of tech, is a compelling investment. Alphabet used its Google brand to branch out to several markets, becoming a titan of digital advertising and heavily investing in AI.
The tech firm's success has seen its annual revenue soar 107% over the last five years, with operating income up 130%. The ever-expanding nature of the tech market will likely keep its earnings trending up over the long term. So, here's why it's not too late to buy Alphabet stock, with the company an attractive option for the new year.
The power of Google
Alphabet claimed a powerful position in tech when it landed on the scene with Google, which has seen it retain more than an 80% market share in search engines for years. The potency of Google in the consumer market and its vast user base has presented almost endless growth opportunities, with Alphabet strategically using it to build a lucrative advertising business.
According to Statista, digital ads are a $680 billion industry, with Alphabet responsible for 25% of the market. Alongside Google Search, Android, and YouTube, the company owes over 80% of its revenue to ads, which continue to deliver significant gains.
In the third quarter of 2023, Alphabet posted revenue growth of 11% year over year, beating analysts' expectations by $980 million after considerable rises in its Google Search and YouTube segments.
Google is easily one of the world's most recognizable brands, with the company attaching the name to many of its ventures into other industries. In this way, Alphabet has seen success in cloud computing, productivity software, web browsers, and more.
Its Google Cloud platform has shown significant promise, posting revenue growth of 23% year over year in Q3 2023. Google Cloud is the third-largest cloud platform, after Amazon Web Services and Microsoft's Azure, but it is rapidly expanding. Alphabet's heavy investment in AI over the last year will likely see it add more AI features to Google Cloud alongside similar updates to its other services.
Alphabet hit $78 billion in free cash flow in 2023, outperforming Amazon and Microsoft. The tech giant has the funds to fuel its research and development and go far in AI and tech in general. Its shares have risen 172% in the last five years and could soar further over the next half-decade on its current trajectory.
Alphabet is the cheapest "Magnificent Seven" stock
Alphabet has been slightly overlooked this year, with AI expansions from other companies in the "Magnificent Seven" group stealing the spotlight. The company's shares have climbed 59% this year, which is impressive. However, it doesn't come close to the triple-digit growth some of its peers have delivered. As a result, Alphabet remains one of the best bargains in big tech.
These charts compare the price-to-earnings ratios and price to free cash flows of the Magnificent Seven, with Alphabet's figures the lowest on both fronts. The Google company's lower valuation metrics indicate its stock is the cheapest option of these companies.
These stocks are the biggest names in tech and will likely make valuable additions to any portfolio over the long term. It's a smart move to dedicate a significant portion of your holdings to at least one of these companies. Meanwhile, Alphabet's dominance in tech, expansion in AI, considerable cash reserves, and reasonable stock price prove it's not too late to invest in this tech giant.