Alphabet (GOOG +3.56%) (GOOGL +3.57%) is known for having the world's dominant search engine, and that's been the company's bread and butter for more than 20 years. And that business has allowed the company to build arguably the best infrastructure and pipelines of products in tech.
With that infrastructure at its base, I think Alphabet can keep growing and adding value for shareholders, and these are the keys to it helping you become a millionaire.
NASDAQ: GOOG
Key Data Points
Grow the core and do more with cash
The chart below shows Alphabet's revenue and free cash flow over the past decade. These numbers are driven by growth in search and the immense profits in that business.
GOOG Revenue (TTM) data by YCharts
While the search business may change over the years, I don't see any reason to think it won't continue to be a cash machine for Alphabet given its billions of users and massive advertising network.
Where I think we'll see a big change in the next decade is Alphabet doing more to return cash to shareholders. The company has started to do buybacks, and that could accelerate as cash generation increases and the core business moves into an extraction over expansion phase.
Cloud and AI are the future
Where there's more growth lurking is in the cloud and artificial intelligence. Google Cloud has grown to be a $31.2 billion business, but generated just $372 million in operating income over the past year. That's an improvement from losing money since the group was started, but there's room for more bottom-line growth.
In addition to the cloud, artificial intelligence and the chips and models Alphabet has developed could drive a new phase of growth for the company. Outside of Nvidia, Alphabet has the most advanced AI chips and it's competing with OpenAI to have the best AI models as well.
Combine these two businesses and there's a lot of optionality for Alphabet. Maybe AI makes Alphabet's products better and adds adjacent use cases like chatbots and better assistants. Or maybe companies start building on Alphabet's AI models, chips, and cloud. However it plays out, this is a leader in AI and I think that could drive growth for many years to come.
One thing Alphabet has going for it that most competitors don't is a way to monetize the AI tools that are being built. OpenAI charges a monthly fee for ChatGPT, but there's increasing speculation that eventually, that will lead to an advertising business for people using ChatGPT to find information. OpenAI would have to build that advertising business from scratch, but Alphabet can plug tools into one of the world's biggest advertising businesses today.
Waymo and other bets provide optionality
The core search business and growth in the cloud and AI provide a great foundation and reasonable value for a company trading for 28 times trailing earnings. But the real upside is in forming new businesses that currently don't exist.
Alphabet puts these investments in what it calls "other bets" and I think Waymo is the one that has the potential to add a lot of value to the business. Waymo's autonomous driving unit has arguably the best tech in the industry, has driven the most fully autonomous miles, and has a partnership with Uber to get to market.
Dozens of other bets from fiber to healthcare could drive value, and right now there's very little value in the stock from these bets. If just one pays off, it would be a huge win.
How Alphabet makes millionaires
Over the last 10 years, Alphabet's stock has risen 452%, meaning a $181,000 investment in early 2014 would have become $1 million over that time frame. A $10,000 investment would now be worth $55,000.
I think getting the same returns in the next decade are optimistic, but the stock increasing in value at a 15% compound annual rate is reasonable, which would turn $250,000 into $1 million over the next 10 years. At that rate of return, it would take more like 33 years to turn $10,000 into $1 million.
