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Here's Why I'm Buying Alphabet Stock Like There's No Tomorrow

5 hours ago

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) doesn’t get the same respect as its big tech peers. These stocks all trade at a premium to the market, as measured by the S&P 500 (SNPINDEX: ^GSPC), while Alphabet does not. There is a lot of pessimism that Alphabet’s primary cash cow, the Google search engine, could be losing its dominance, threatening the company as we know it today.

However, the numbers don’t back this up. Google Search is still dominant and making a ton of money. Because of Alphabet’s strong financial picture and cheap price, it’s an excellent stock to load up on right now.

Person laying on the ground looking at their phone.
Image source: Getty Images.

Most of the concern about Alphabet losing market share involves users switching to alternatives, such as generative AI models. Regardless of which one they use, each time a generative AI model is asked a question, it is one time that Google isn’t able to place ads in front of a user. This threatens a core part of the company’s business because it gets 56% of its revenue from search.

We’ve seen Google’s market share slip a bit, dropping below 90% for the first time since 2015 earlier this year. Still, this doesn’t mean the financial picture is trending in the wrong direction, as Google Search revenue rose 10% year over year in the first quarter.

One thing helping Google maintain its position is the introduction of AI search overviews, which bridge the gap between a traditional Google search and using a generative AI model. Management has discussed how popular the feature is, and it is going to continue developing it.

Although the forecast for Google’s market share isn’t particularly great, it’s still doing an excellent job with its business. I think the market is underestimating the fact that most consumers aren’t going to switch away from Google unless something much better is launched. This will protect Alphabet’s mindshare and ensure that it continues producing solid results.

The first quarter’s results were truly fantastic and did not indicate a company that was struggling at all.

In that quarter, overall revenue increased 12% year over year, and diluted earnings per share (EPS) increased 49% year over year. If all I presented were those growth rates and its valuation, you would think it’s an incredibly undervalued stock. But because Alphabet’s name is attached to the stock, it trades at a hefty discount to the market and its peers.