Alphabet’s Stock Performance and Future Outlook
Alphabet (NASDAQ: GOOGL, NASDAQ: GOOG) has seen a 144% surge in share prices over the past five years and an impressive 525% rise in the last decade. However, as of May 28, shares are 16% below their peak reached on February 4. Is this a good time to buy Alphabet as market concerns mount?
Concerns Over AI Disruption
Investors worry that generative artificial intelligence (AI) could disrupt Google Search, which accounted for 56% of sales in Q1. If users shift to AI for information, this could siphon traffic from Google and harm advertising revenues.
Despite these fears, Google Search retains a 90% global market share among search engines. In Q1, search revenue grew by 10% year-over-year, hitting $50.7 billion, a 28% increase from three years prior.
Alphabet is actively investing in AI. At its May Google I/O conference, the company announced 100 updates, showcasing new AI features across its services.
AI is already generating revenue for Alphabet, with Chief Business Officer Philipp Schindler noting monetization remains robust in comparison to traditional search. Advertisers use AI to improve campaign effectiveness and targeting.
In Q1, Alphabet reported net income of $34.5 billion, positioning the company to invest heavily in AI initiatives for competitive advantage.
Alphabet’s Competitive Edge
The company’s strong economic moat underscores its business quality. Alphabet benefits from robust network effects on platforms like Search and YouTube, along with strong brand recognition and substantial data collection capabilities.
Google Cloud has also started contributing positively to the bottom line with $49 billion in annual revenue for Q1, supported by high customer retention rates due to operational dependency on its services.
Valuation Considerations
Alphabet’s shares are currently trading at a price-to-earnings (P/E) ratio of 19.2, which is cheaper compared to the S&P 500 Index. This valuation appears low given Alphabet’s overall business quality and performance compared to the “Magnificent Seven” stocks.
Investors may perceive this valuation as an opportunity. The current price dip presents a favorable entry point for potential buyers.
Should You Invest in Alphabet Now?
Before investing in Alphabet, it’s essential to note that it was not included among the top ten stocks recommended by a leading analyst team. Other stocks are viewed as yielding higher potential returns in the coming years.
However, allegations of missed opportunities by previous analyst selections emphasize the importance of evaluating current market conditions without overthinking the situation.
Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Neil Patel has no positions in any stocks mentioned. The Motley Fool holds positions in and recommends Alphabet.
The views expressed herein represent those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
