If you purchased $10,000 in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock when it started trading as Google in 2004, you would have over $550,000 now. I think every investor wants a 55-bagger.
Alphabet's market cap is currently $1.7 trillion, making that return unlikely over the next two decades. However, I think Google's parent shares have much potential to run. Seven reasons why buying "Magnificent Seven" shares now may be smart.
1. Multi-market dominator Any long-term investor buys a stock because of its strong business. Alphabet fulfills this and more. The firm rules many markets. Google Search dominates search engines. YouTube is the top video-sharing site. Chrome is the most popular browser. Android dominates smartphone operating systems. Alphabet has various more products that lead their markets but may not dominate.
2. Excellent finances Outstanding financial performance indicate a robust business. Alphabet earned almost $307.4 billion in 2023. Its $73.8 billion profit exceeded the market caps of more than three-fourths of the S&P 500. The corporation ended last year with over $111 billion in cash. Exceptional? I guess so.
3. Massive AI opportunity Some companies can have good financial outcomes but poor growth potential. Alphabet doesn't. AI is the company's biggest tailwind. Alphabet has traditionally led AI development. Change is unlikely. With IT investment moving to the cloud faster, AI should boost Google Cloud growth.
Google Search may face an existential danger from AI. I disagree. Search engines will evolve and include AI assistants. Alphabet will adapt to technology developments, I predict.
4. Waymo One Alphabet AI focus is noteworthy. Waymo leads self-driving car development. Robotaxis might sell $9 trillion by 2030, according to Cathie Wood's ARK Invest. I expect a huge robotaxi business, even if the volume and timeframe are ambitious. Waymo will be a tremendous winner, I think.
5. Option The best stocks have optionality (several growth paths). Alphabet offers options more than most. As a quantum computing pioneer, the corporation might be a significant market. Its famed "other bets" include biotech, smart-home, and more.
6. Reasonable value Stocks with outstanding businesses, financials, and growth potential may not be good investments due to excessive valuations. Alphabet is valued fairly, given its growth potential. Aswath Damodaran, the "Dean of Valuation," of New York University established a formula that makes Alphabet the cheapest Magnificent Seven company.
7. Underappreciated Many underestimate Alphabet despite its strengths. Some wrote off the company following its Google Bard generative AI app launch PR disaster last year. Others cite Google Gemini's recent historical figure misrepresentation scandal. These seem like tiny setbacks on a long growth path. An "underdog" that controls many huge markets, makes money hand over fist, has multiple development routes, and is appropriately valued? I call that a betting dog.
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