Should I buy Alphabet stock?
Alphabet Inc (Nasdaq: GOOG), parent company to Google, is one of the biggest tech stocks on the market today. In fact, when you think of “Big Tech,” chances are the name is one of the first that come to mind. There’s no question, when you talk about Alphabet Inc, you’re talking about one of the greats.
But if you want to invest, have you already missed the boat?
Alphabet outperformed the overall market by a wide margin in 2021, driving 66.8% returns for investors. After such an astronomical run, many are wondering if they’ve missed their opportunity to invest — but the fun may be far from over.
Should You Buy Alphabet (Google) Stock?
Alphabet stock is surely a popular choice on Wall Street. According to ETF.com, 335 exchange-traded funds (ETFs) invest in the stock. Not to mention, with more than 1 million shares of GOOG trading hands in any given trading session, it’s one of the most popular tickers among investors of all types. But should you buy it?
Alphabet Stock’s Historical Performance
Alphabet has a long history of solid performance. If you had invested $10,000 in the stock in 2004 when it was trading at around $54 per share, you would have more than $511,000 today.
But it’s not just early investors who have profited from this stock — its more recent gains have been impressive too. Over the past five years, the stock is up more than 240%, more than doubling the returns of the S&P 500 over the same period.
One of the most impressive performances on the stock happened over the past year. In 2021, Alphabet shares climbed 66.8% in value, leading growth stocks to the top.
The circumstances of the run made it even more impressive than any other previous climb we’ve seen. This leg up took place amid inflation concerns and COVID-19-related supply chain headwinds that put a damper on most growth stocks, but you couldn’t tell that based on Alphabet’s share price.
Even with the strong growth in the stock price, its valuation is still more than fair. The stock is trading at around seven times revenue over the next year and 26 times forward earnings. Those metrics make the stock look cheap in today’s tech market.
An Inescapable Ecosystem
There’s no questioning what made Google, now Alphabet, such a success. The company has built an ecosystem that is nearly impossible to escape. It offers several different products, each interconnected with the next, as part of the central ecosystem.
Android cellphone owners are likely to own a Chromebook, use Gmail, and take advantage of Google search before using products from any other provider.
Consider the following:
Google — The World’s Most Popular Search Engine
Google is, by leaps and bounds, the most popular search engine in the world. It’s so popular that it’s name is both a noun and a verb. If you don’t have the answer to a question, you “Google it.”
There are more than 5.6 billion searches performed on Google every day. To put that into perspective, there are around 7.9 billion people on Earth today. That means Google fields search queries equal to about 70% of the global human population — every single day.
The World’s Leading Advertising Platform
With the world’s leading search engine and, according to Alexa, the world’s highest-traffic website, it makes sense that Alphabet is the owner of the world’s leading digital advertising business. In fact, ad revenue accounts for more than 80% of the company’s overall revenue.
It makes sense too; Alphabet controls more than 18% of the online advertising market, according to Statista.
However, Alphabet isn’t just controlling ads on its hit sites like Google.com and YouTube; it controls ads on sites across the web through its Adsense platform. The platform connects ad buyers with publishers, filling online ad spaces in the blink of an eye. Of course, Alphabet takes a percentage off the top of each transaction, helping to bolster both its leadership in online advertising and its topline revenue.
Mobile Phone Operating System Dominance
When you think of the most popular smartphone, the Apple iPhone may be the first to come to mind, and you’d be right. However, when it comes to the most popular mobile operating system, Android, an operating system owned by Alphabet, is the hands-down leader.
According to Statcounter, Android controls 70.1% of the market, with iOS only controlling 29.24%.
Not only does the operating system generate revenue through the Google Play store, it serves to keep consumers in the Alphabet ecosystem, pushing them toward Gmail email addresses and the use of Google Search and other products within the ecosystem.
Gmail — The Most Used Email Service
Gmail is the leading email client, controlling more than 27% of the market according to TechJury. That means more than one-quarter of all people with an email address use Gmail.
Of course, that also means more ad revenue for Alphabet, and yet another popular service that keeps the end consumer in the company’s thriving ecosystem.
Google Cloud Computing
Alphabet is becoming a key player in the cloud computing space as well with its Google Cloud platform. According to Statista, the service commands third position by market share, controlling 9% of the overall cloud computing market behind Microsoft Azure and Amazon Web Services (AWS). However, Google Cloud’s market share has been consistently growing, and there’s no reason to expect any slowing in that trend.
Big-name clients are already migrating to Google Cloud, largely because Alphabet has greatly undercut prices charged by its competitors. PayPal, Home Depot, and Twitter are all Google Cloud customers, and further adoption is expected ahead.
As the cloud computing industry continues to grow and Google continues to steal market share from the other two leaders in the space, Google Cloud is likely to contribute far more revenue to Alphabet’s top line.
Chrome Gains Market Share
As if the Alphabet ecosystem wasn’t already large enough, Chrome, the company’s laptop operating system and internet browser, is another area that has seen tremendous growth.
The Chrome operating system offers security without having to pay for extra antivirus software, while the Chrome Internet browser increases security regardless of which operating system you’re running. Not to mention, they’re both lightning fast, attracting the attention of the end consumer. Chrome is a free browser that integrates seamlessly with the rest of the Alphabet ecosystem.
This Ecosystem Creates Resilience
The ecosystem outlined above has everything to do with why Alphabet outperformed the overall market last year, over the past five years, and throughout its history.
The company isn’t just about giving consumers what they want — it has built an interconnected system that gives consumers everything they need, all backed by a trusted brand. Android devices surf the Internet better with Chrome, sync easier with Gmail, default to using Google Search, and can often sync with other Android devices.
This is where economic resilience comes in.
Regardless of economic conditions or the state of the market, companies will continue to push for new customers, paying valuable advertising dollars. Consumers will always seek entertainment, knowledge, and understanding. Both sides of that equation exist in the Alphabet ecosystem, creating a system that thrives regardless of macroeconomic factors.
It’s clear that I take a bullish stance when it comes to Alphabet, but I’m not the only one with that opinion. By all accounts, it’s one of the best stocks on the market — and by “all accounts,” I mean every single analyst who covers it.
According to TipRanks, there are seven different analysts covering the stock, but there are no Hold or Sell ratings. Every analyst that has offered up coverage recommends consumers buy Alphabet.
The price targets analysts have placed on the stock are equally exciting. The highest forecast suggests that the stock could grow to be worth $3,500 per share over the next year, while the lowest suggests it could grow to $3,000 per share. The average target on the stock is $3,287.14, suggesting the potential for 18.61% gains over the next year.
Who Should Buy Alphabet Stock?
Considering its fair valuation, dominance in everything the company touches, and the thriving ecosystem it has developed, Alphabet is a stock that fits into just about every investment portfolio out there today. The question isn’t whether it’s a good stock to include in yours, but how much you should allocate to it.
There are a few factors to keep in mind when making that decision. You might be more inclined toward a heavier investment in Google stock if:
- You Want to Invest in Tech. First and foremost, Alphabet is a tech stock at its core — one of the largest in the world. If you’d like heavy exposure to tech in your portfolio, this is one worth loading up on.
- You Want Growth and Value. Alphabet is one of those rare stocks that offers both growth and value opportunities. The growth on the stock has been impressive, but growth in the company has kept valuation metrics in check. So, if you’re looking for growth and value, or one or the other, GOOG is a great stock to consider loading up on.
- You Don’t Care About Dividends. While many types of investors could easily benefit from allocating 5% or so of their portfolio to Alphabet, income investors looking to derive regular income from their portfolio may prefer to have minimal exposure to the stock. Alphabet has never paid a dividend and has not indicated that it plans to in the future.
All told, Alphabet is a great stock to consider adding to your portfolio. The company has a long history of dominance in just about any industry it decides to take part in. At the same time, its stock has performed better than anyone could have expected since it became available to the public back in 2004.
Not to mention, analysts absolutely love it!
On the other hand, it’s not a good idea to take my word or any other expert’s word for it. Ultimately, when you make an investment decision, you’re making a decision that will either increase or shrink your net worth. That’s one that shouldn’t be taken lightly. Always take the time to do your own research and form your own opinion.