Alphabet consists of a diverse array of tech businesses, but there’s no single stock that encompasses the entire organization.
The term “Magnificent Seven” often refers to the leading tech companies that have significantly outperformed the market. This group includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. These firms have generated remarkable returns over the past decade, largely because they are leaders in cutting-edge technological trends.
Even within this elite group, one particular stock stands out due to its dominant core business model, alignment with major industry trends, and attractive valuation.
To add some context, Alphabet trades through two ticker symbols: GOOG and GOOGL.
A Unique Business Model
Alphabet distinguishes itself in a few key ways. Unlike its counterparts in the Magnificent Seven, it trades below two ticker symbols.
So, why is that? A brief look back provides some clarity. Larry Page and Sergey Brin founded Google, which eventually became Alphabet, back in 1998. During the company’s IPO in 2004, Page expressed in a letter to shareholders that “Google is not a traditional company.”
He expressed concern that going public could threaten the independence and creativity that have driven Google’s success. The company, he emphasized, is not averse to high-risk projects for the sake of quarterly profits. To preserve this autonomy, the founders and executive team implemented a dual-class stock structure for greater control over decision-making.
Understanding Insider Control
Common stock entitles owners to vote on various issues like executive pay and board appointments. At its public debut in August 2004, Google utilized a dual-class structure to concentrate 99% of the voting rights among its founders and key executives:
- Class A shares (available to public investors) get one vote each.
- Class B shares (held by insiders) get ten votes each.
Page acknowledged this was an unusual step for a tech company but noted it was more common among other businesses, such as Berkshire Hathaway. Since then, many tech companies, including Meta Platforms and Palantir, have adopted similar dual-class structures.
A Confusing Share Structure
In April 2014, Google added another layer of complexity by executing a 2-for-1 stock split. Shareholders received an additional Class C share for every Class A share they owned, introducing two distinct classes of publicly available stock:
- Class A Share (GOOGL): 1 vote per share
- Class C Share (GOOG): No voting rights
This stock split aimed to allow Google to pursue acquisitions and incentives without diluting the voting power of executives.
Here’s the current structure:
- Class A Share (GOOGL): 1 vote per share
- Class B Stock (held by insiders): 10 votes per share
- Class C Share (GOOG): No voting rights
Should You Invest in GOOG or GOOGL?
Alphabet, formed in 2015, is more than just a search engine. Investing in Alphabet can feel like purchasing an ETF that taps into significant tech themes—ranging from cloud computing to AI, and even autonomous vehicles. The company’s valuation is currently more appealing than its Magnificent Seven peers, based on its price-to-earnings ratio.
However, the question remains: should you buy GOOG or GOOGL? GOOGL offers the benefit of voting rights, which might make it more valuable. Yet, interestingly, GOOG has performed better since the stock split in 2014.
As of July 16, GOOGL was priced at $183.77, while GOOG was at $182.97. So, if you look at it this way: both stocks represent the same underlying business, but GOOGL gives you additional voting power.
Realistically, most everyday investors wouldn’t be able to buy enough shares to impact company decisions significantly. Price differences between the two are often minimal, given that they represent the same business. Unless voting rights matter to you, both stocks are solid options for investing in this prominent tech entity.
