I think it's fair to say that the Nasdaq and "Magnificent Seven" stocks have seen better days. The Nasdaq Composite recently entered into correction territory and is down over 8% year to date, and Meta Platforms (META 2.96%) is the only Magnificent Seven stock in the green this year (as of March 13).
The rest of the Magnificent Seven stocks (Apple, Nvidia (NVDA 5.27%), Microsoft, Amazon, Alphabet (GOOG 1.75%) (GOOGL 1.68%), and Tesla) are all down at least 9%, but it's not time to sound the alarm just yet. If anything, now could be a time to begin thinking about bargain shopping if you have cash available.
One beaten-down Magnificent Seven stock that's looking increasingly appealing is Alphabet. It's down over 19% from its early February high, but its business has a ton of momentum behind it. If you're considering going bargain shopping, here are three reasons to consider Alphabet.
NASDAQ: GOOGL
Key Data Points
1. Alphabet continues to be a cash cow
Alphabet has an impressive portfolio of companies: Google, YouTube, Waymo, DeepMind, Calico, and a handful of others.
While some of these businesses fall into Alphabet's "Other Bets" segment because they're more experimental and focused purely on long-term innovation, companies like Google and YouTube have turned Alphabet into a premier cash cow.
In 2024, Alphabet made over $350 billion in revenue, up 14% from 2023 and almost $100 billion more than it made just three years ago. For perspective, that's more than Meta Platforms and Nvidia have made in their last four quarters combined. And only 10 other public companies have generated more revenue in their past four quarters.
GOOGL Revenue (Annual) data by YCharts
Alphabet's impressive revenue and operating income (over $112 billion in 2024) explain how the company has managed to accumulate $95.7 billion in cash, cash equivalents, and short-term marketable securities.
Having a large cash reserve gives Alphabet a lot of flexibility to make the appropriate investments for growth and puts it in a position to weather most economic storms that come its way. That's a key to long-term stability.
2. Google Cloud will be Alphabet's next major money-maker
Google Cloud is Alphabet's fastest-growing segment. In the fourth quarter, its revenue increased 30% year over year to $12 billion, making up 12% of Alphabet's total revenue. Two years ago in Q4, it was around 7%, and five years ago, it was around 5%.
It has a ways to go to catch up to Amazon Web Services (AWS) and Microsoft Azure in market share, but it's very much trending in the right direction. As of Q4, AWS and Azure had a 30% and 21% market share, respectively, while Google Cloud sat at 12%.
With the cloud computing market projected to have a compound annual growth rate (CAGR) of around 16.5% until 2032, Google Cloud doesn't need to overtake AWS or Azure to be a lucrative business. Simply growing at or slightly above the industry average should allow Google Cloud to significantly increase its revenue and profitability.
The profitability part is especially true as the platform reaches a greater scale. Cloud services have a lot of fixed costs (data centers, server infrastructure, research and development, etc.), so it takes a certain size before economies of scale kick in and profit and margins begin to expand. Google Cloud is well on its way to reaching that.
3. It's becoming too hard to ignore Alphabet's valuation
Valuation isn't everything when investing in a great long-term business, but a low valuation surely helps. Alphabet is trading just over 20 times its trailing-12-month earnings, far below its averages for the past five and 10 years.
It's also noticeably cheaper than any of the other Magnificent Seven stocks.
GOOGL PE Ratio data by YCharts
Alphabet has some short-term risks, such as a potential drop in advertising spending from companies if we approach a recession and other regulatory questions.
However, the business is positioned to flourish in the long term. If the short term concerns you too much, consider dollar-cost averaging your way into a stake.
