Only seven companies in the world have this. Market capitalization At least $1 trillion. Among these businesses, only microsoft, apple, Nvidiaand alphabet (NASDAQ:GOOG) (NASDAQ:Google) We reached an even more exclusive club.
No, I’m not talking about accessing “.Magnificent Seven“–but all of these companies belong to that club. All four of these tech giants have market capitalizations of at least $2 trillion, and Alphabet is the most recent member to reach that milestone. is.”
Alphabet’s stock price soared 9% after the company’s encouraging first-quarter earnings report. Is it too late for growth investors to scoop up Alphabet stock since it surpassed a $2 trillion valuation?
i don’t think so. In fact, now seems like a better time than ever to buy stocks. Let’s find out why.
Don’t sleep on the advertising business
One of the biggest blows to Alphabet in recent years has been the slowdown in its core advertising business. tough competition from meta platformTikTok, and some smaller players, etc. pinterest and snaphas found a way to attract cyclical advertising dollars from Alphabet.
I think what investors are missing is that even though Alphabet’s advertising business isn’t growing at the levels it once did, this division is still a huge revenue generator for the company. In fact, Alphabet’s advertising and services business accounts for nearly all of the company’s operating profit, with cloud computing contributing to nominal profits.
The graph above shows Alphabet’s operating income growth relative to sales. Although Alphabet’s revenue has begun to slow slightly, the company still achieves excellent levels of operating efficiency. This has resulted in significant profit growth and strong free cash flow generation for Alphabet. It’s these excess profits that are driving Alphabet to the next frontier beyond advertising.
End-to-end artificial intelligence platform
Artificial intelligence (AI) is currently the hottest topic in technology. Over the past year or so, Alphabet has made a number of strategic investments in AI. In other words, the company’s generative AI model (called Gemini) is Alphabet’s answer to the hugely popular ChatGPT.
ChatGPT may have first-mover advantage, but Alphabet has its own secret weapon: data. Remember, Alphabet owns Google and YouTube, the top two most visited websites in the world.
Alphabet is collecting an unprecedented amount of data. Given that large-scale language models (LLMs) fundamentally rely on vast data libraries, Alphabet has a competitive advantage over others.
Where Alphabet has a real chance to leapfrog its competitors is by integrating AI throughout its ecosystem. Alphabet may be best known for Google and YouTube, but the company also has a workplace productivity suite similar to Microsoft Office and a budding cloud computing business that grew 28% in the first quarter alone. Please remember that there are
The explanation regarding evaluation is persuasive.
The chart below benchmarks the future price-to-earnings ratio (P/E) of mega-cap tech companies. Alphabet’s forward P/E of 22.6 is the lowest of this cohort.
Alphabet’s stock price rose significantly following its first quarter results, driven by demonstrated growth across the company’s businesses and advances in AI. However, even after the significant increase, the company’s valuation remains significantly undervalued compared to its peers.
Many investors may still be narrowly focused on advertising revenue, missing the bigger picture of margin expansion, cash flow growth, and how Alphabet reinvests these profits. is very high. I think Alphabet stock is very cheap right now, and the difference in valuation multiples mentioned above makes it an attractive buying opportunity.
Now seems like a good time to take advantage of Alphabet’s current trading activity and buy up the stock.
Should you invest $1,000 in Alphabet right now?
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Randi Zuckerberg, former head of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frye, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. adam spatacco We have positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Pinterest, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has Disclosure policy.
Is it too late to buy stock in the newest member of the $2 trillion club? Originally published by The Motley Fool
