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Is This Underdog Tech Stock a Hidden Gem Among Giants? Is This Underdog Tech Stock a Hidden Gem Among Giants?

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The S&P 500 has witnessed a triumphant resurgence since the depths of the bear market, transitioning into a long-awaited new bull market. Leading this charge are the renowned “Magnificent Seven” tech leaders: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Apple, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. This illustrious group has not only propelled the market forward but also displayed stellar performance, with each posting double or even triple-digit climbs in the past year.

Despite their impactful role in driving the index’s gains, there is one stock among them that stands out as an anomaly—an underappreciated gem hidden in plain sight among the titans. Should investors be giving this tech stock a second look?

An investor sitting in an office looks at something on a tablet.

Image source: Getty Images.

A Diamond in the Rough: Assessing Future Earnings for Clues

Among the elite cadre of market leaders, Alphabet emerges as the dark horse, currently trading at a modest 20x forward earnings estimates. This forward-looking approach provides a glimpse into the company’s potential future earnings over the next year, steering away from the conventional trailing P/E ratio that deals with historical earnings alone.

AAPL PE Ratio (Forward) Chart

AAPL PE Ratio (Forward) data by YCharts.

Looking ahead allows investors to gauge a company’s valuation relative to its anticipated earnings potential, providing a forward-looking perspective. In Alphabet’s case, with its predominant market share and unyielding dominance in the search sector, the future appears brighter than traditional metrics suggest.

Guarding the Castle: Alphabet’s Impenetrable Moat

Alphabet’s indomitable presence in the search market, with a staggering 91% market share, fortifies its competitive edge and secures its market leadership for the foreseeable future. This stronghold lures advertisers seeking to connect with consumers, driving a significant portion of Alphabet’s revenue, which accounted for 75% in the last quarter.

Moreover, Alphabet’s strategic ventures into artificial intelligence (AI), exemplified by groundbreaking tools like Gemini and Gemini Ultra, signal a commitment to innovation and long-term sustainability. The integration of AI enhances user experience, accelerates ad creation, and contributes to Alphabet’s enduring appeal.

Charting New Horizons: Google Cloud’s Revenue Trajectory

Alphabet’s foray into cloud services, coupled with its AI prowess, lays a strong foundation for sustainable growth. The strategic diversification into cloud computing, bolstered by a suite of AI tools, underscores Alphabet’s resilient business model and its knack for astute investment decisions.

GOOG Return on Invested Capital Chart

GOOG Return on Invested Capital data by YCharts.

Considering these factors, the prospect of Alphabet emerging as a top choice among the Magnificent Seven stocks becomes increasingly enticing. Its established dominance, resilient moat, and growth potential position it as a compelling investment opportunity in today’s dynamic market landscape.

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Suzanne Frey, an executive at Alphabet, and Randi Zuckerberg, former director of market development at Facebook, are members of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is also a member of The Motley Fool’s board of directors. Adria Cimino holds positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends options related to Microsoft. The Motley Fool has a 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.

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