"A blue chip stock is stock in a company with a national reputation for quality, reliability and the ability to operate profitably in good times and bad."

Published by the venerable NYSE Euronext stock exchange, that's just about the most official definition of a blue chip stock you'll find.

Does online giant Google (NASDAQ:GOOG) (NASDAQ:GOOGL) fit the bill? I believe it does, and here's why.

Google is by far the most successful company in its chosen core business. The online search market belongs to Big G. The company owns 67% of the American desktop search market, 83% of mobile search, and over 90% of overall European search.

Quality isn't always the same thing as popularity, but the search market is different. Given how easy it is to switch your searches to a new provider, I would argue that Google's users wouldn't stick around unless they liked what the company is doing. If the quality of Google's search results ever drops, or is eclipsed by a disruptive newcomer, the company could be in big trouble.

That's why Google spends more on research and development than almost any other tech giant. Google keeps the midnight oil burning to ensure that its products stay one step ahead of the competition.

  • In 2013, Google allocated 13.2% of its revenue to R&D projects, up from 12.8% in 2010.
  • By contrast, Apple (NASDAQ:AAPL) used just 2.6% of its total sales to power its R&D efforts, down from 2.7% in 2010.
  • IBM (NYSE:IBM), which topped the U.S. patent awards list every year for the last two decades, did it with just 6.2% of sales in 2013 and 6% in 2010.
  • The only tech colossus that can stand up to Google's research spending is Microsoft (NASDAQ:MSFT). Even so, Google still ran 0.1% ahead of Microsoft's R&D ratio in 2013.

Not all of these R&D dollars go into improving Google's search results, though. Google's YouTube is the world's most popular short-form video service. With Android, the company is trouncing Apple's smartphone sales volume on a global level. The list goes on. And Google isn't afraid to spend big money on seemingly crazy business ideas, from self-driving cars to networked contact lenses.

Google's official mission is to "organize the world's information and make it universally accessible and useful." Management believes that "great just isn't good enough." And it's not all about making money. "Ultimately, our constant dissatisfaction with the way things are becomes the driving force behind everything we do."

Long story short, Google cares deeply about quality -- in its products, in its impact on the world at large, and in the business model itself.

Fantastic all-around quality is a great start, but blue chip businesses also have to perform "in good times and bad."

This is how Google fared around the 2008 recession: revenues and free cash flows more than quadrupled from the beginning of 2006 to the end of 2010, but investors largely ignored these fundamental business wins.


GOOGL data by YCharts

Let's compare and contrast to the tech giants mentioned earlier during the same period.

  • Across the same calendar slice, Microsoft grew sales and cash flows by roughly 60% while share prices rose 5%. 
  • IBM's sales increased by 12%, driving cash flows 32% higher. IBM stock prices gained 82%.
  • Of course, Google couldn't hold a candle to Apple's phenomenal growth in this era, which includes the rise of iPhones, iPads, and mobile computing in general. Apple's free cash flows skyrocketed 2,000% higher, and share prices more than quadrupled. However, Google held its own against Apple in terms of sales growth:

AAPL Revenue (TTM) Chart

AAPL Revenue (TTM) data by YCharts

Keeping pace with the greatest growth stock of this generation, right across the worst economic backdrop of the last decade, proves Google's staying power in challenging markets.

Final thoughts
Google measures up to the definition of a blue chip stock, in more ways than one.

CEO Larry Page wants to change the world, much more than he wants to make money. Filter that attitude through another of Google's "10 things we know to be true," which is that all else will follow when you focus on the user, and you end up building a fantastic business for the very long haul.

This is why I own Google stock, and why I intend to keep owning it for many years and decades to come. Google's business is much larger than a simple search engine, driven by intense research in service of a deep long-term vision.

To me, that just sounds like another definition of "blue chip."

Anders Bylund owns shares of Google (A shares). The Motley Fool recommends Apple, Google (A and C shares). The Motley Fool owns shares of Apple, Google (A and C shares), IBM, and Microsoft. Try any of our Foolish newsletter services free for 30 days.

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