Investing in Tech: Alphabet and Meta Platforms Shine Bright
Technology is now more integral to our lives than ever. Companies that center their operations around tech have become key players in the global economy. Investors should take note of this trend and consider allocating funds in this booming area.
To gain exposure to the technology sector, investors should consider these two stocks from the “Magnificent Seven”:
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Leading the Pack
Investors should look into Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META), both of which are major players in the internet sector.
Alphabet’s CEO, Sundar Pichai, states that the company boasts six products each with over 2 billion users. Meta’s collection of apps (including Facebook, Instagram, WhatsApp, Messenger, and Threads) has a staggering 3.29 billion daily active users.
Such vast user bases provide these companies with significant advantages. They create powerful network effects, making online data and content more appealing for users. This, in turn, enhances their attractiveness to advertisers on Google, and encourages users to engage further on Meta’s platforms.
These companies’ extensive reach allows them to deploy artificial intelligence applications effectively. Immediate user feedback informs product development, keeping them at the forefront of technology advancements.
Strong Financial Position
While investing in unprofitable companies can yield returns if they experience rapid growth, it’s wiser to select firms already generating solid earnings to reduce risk.
Both Alphabet and Meta Platforms excel in this regard. Alphabet recorded a remarkable 34% year-over-year increase in operating income during the third quarter, with Meta not far behind at 26%. Both companies managed to improve their operating margins as well.
With their robust cash flow, Alphabet and Meta are well-positioned to invest in essential infrastructure, such as servers and data centers. This investment boosts their processing capabilities, allowing them to seize AI opportunities and maintain their technological edge.
Despite their investments, both companies continue to return significant value to shareholders. Over the last 12 months, Alphabet’s diluted share count decreased by 2.2%, while Meta’s dropped by 1.6%. Earlier this year, both companies introduced dividends for the first time, offering a consistent income stream to investors.
Assessing Valuations
Identifying high-quality companies with competitive advantages is one aspect of investing; ensuring their shares can be purchased at reasonable valuations is another challenge.
Since the beginning of 2023, Alphabet and Meta stocks have surged by 113% and 396%, respectively (as of Dec. 18). These astonishing gains may seem hard to believe, yet their stock valuations remain reasonable.
Currently, Alphabet is sporting a forward price-to-earnings ratio of 23.6, while Meta is at 26.4. These figures make them some of the more attractively priced options among the Magnificent Seven.
Investors looking to diversify should think about establishing positions in Alphabet and Meta Platforms.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Randi Zuckerberg, a former director at Facebook and sister to Meta CEO Mark Zuckerberg, is also on the board. Neil Patel and his clients hold no position in any mentioned stocks. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. For more details, refer to The Motley Fool’s disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
