Alphabet stands out as the top contender among the Magnificent Seven stocks that spearheaded the market’s growth in 2023.
With projected earnings growth of 15% in 2024, matching the pace of Microsoft and outpacing Apple’s modest 5% growth, Alphabet is poised for impressive expansion. Surprisingly, its stock trades at only 20 times earnings, offering a significant discount in comparison to Microsoft and Apple’s 30 times multiple, despite a 50% surge this year.
Investor concerns regarding Alphabet’s cloud computing division’s decelerating growth, the impact of artificial intelligence on its search business, and antitrust scrutiny have been overblown.
Despite perceived disappointments, the cloud business still achieved a remarkable 22% revenue growth rate in the third quarter. Additionally, although caught off guard by Microsoft’s AI search initiative initially, Alphabet swiftly adapted and recovered. Moreover, the potential antitrust issues may not pose a substantial problem, and there’s a possibility that Alphabet could be more valuable if broken up.
Impressively, Alphabet boasts a substantial net cash reserve exceeding $100 billion as of Sept. 30, demonstrating the company’s financial strength. Furthermore, Alphabet exhibits prudent cost management practices, leaving ample room for stock buybacks and even initiating dividend payments. A potential 1.5% dividend payout aligning with market standards could be comfortably supported by Alphabet.
According to Evercore ISI analyst Mark Mahaney, “We continue to view Alphabet as one of the true leading tech franchises at a fundamental inflection point.”
This excerpt was written by Andrew Bary.
