If you had invested $10,000 in Alphabet (GOOG 9.96%) (GOOGL 10.22%) stock when it first began trading in 2004 as Google, you would have more than $550,000 today. I suspect every investor on the planet would love a 55-bagger.
With Alphabet's market cap now topping $1.7 trillion, the prospects of getting that kind of return over the next two decades are slim. However, I think shares of Google's parent still have a lot of room to run. Here are seven reasons why buying this "Magnificent Seven" stock could be a brilliant move right now.
1. A business that dominates multiple markets
Ultimately, the main reason for any long-term investor to buy any stock is that it has a great underlying business. Alphabet checks off this box and then some.
The company dominates multiple markets. Google Search ranks as the top search engine by far. YouTube is the No.1 video sharing platform. Chrome is the most widely used browser. Android has the biggest market share in mobile operating systems.
Alphabet also has several other products that might not fully dominate their respective markets but still rank among the leaders.
2. Exceptional financials
The proof that a business is truly strong is exceptional financial results. Alphabet generated total revenue of nearly $307.4 billion in 2023. It posted a profit of $73.8 billion -- a greater amount than the individual market caps of more than three-fourths of the S&P 500. The company finished last year with a massive cash stockpile of nearly $111 billion. Exceptional? I think so.
3. A huge AI opportunity
Of course, some businesses can still generate strong financial results but have less-than-inspiring growth prospects. That's not the case with Alphabet. One tailwind for the company stands out above all others: artificial intelligence (AI).
Alphabet has long been a leader in AI development. I don't see that changing. AI should especially drive growth for the company's Google Cloud unit with an accelerated transition of IT spending to the cloud.
There is an argument that AI could present an existential threat to Google Search. I disagree. Sure, search engines will evolve and be supplemented by AI virtual assistants. However, my prediction is that Alphabet will adapt successfully to the technology changes.
4. Waymo
One area of Alphabet's AI focus warrants a special mention. The company's Waymo unit is a leader in developing self-driving car technology. Cathie Wood's ARK Invest projects that robotaxis could generate $9 trillion in sales by 2030.
Even if the amount and timing of that prediction are overly optimistic, I think the robotaxi market will be ginormous. And I think that Waymo will be one of the biggest winners in it.
5. Optionality
The best stocks to buy are those that have optionality (i.e., multiple paths to growth). Alphabet has more optionality than most. The company is a pioneer in quantum computing, which holds the potential to be a huge market. Its famous "other bets" segment includes biotech ventures, smart-home devices, and more.
6. A reasonable valuation
In many cases, stocks can have great underlying businesses, financials, and growth prospects but still not be good choices for investors because of sky-high valuations. Alphabet, though, has a reasonable valuation -- especially in light of its growth opportunities. Based on a model created by New York University finance professor Aswath Damodaran, often referred to as the "Dean of Valuation," Alphabet is the cheapest Magnificent Seven stock right now.
7. It's underestimated
Despite all of its strengths, Alphabet is still underestimated by many people. Some wrote the company off after its public relations stumble with the launch of the Google Bard generative AI app last year. Others point to the company's recent embarrassment of Google Gemini creating inaccurate images of historical figures. I think these are merely minor bumps on a long road of growth.
An "underdog" that dominates multiple big markets, is making money hand over fist, has multiple paths to growth, and is reasonably valued? I call that a dog to bet on.
