Magnificent Seven stocks have attracted a great deal of buzz as investors gravitate toward their vast market share and exceptional returns. Every Magnificent Seven stock has greater than doubled over the past five years. These assets have significantly outperformed the market during that time. Nevertheless, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has been a largely underappreciated stock.
The corporation has amassed a $1.75 trillion market cap and is up by 56% over the past yr. Still, that gain falls behind most of the Magnificent Seven stocks. Recent opportunities and a superb valuation may help Alphabet gain momentum and accumulate long-term returns for investors. Those catalysts make me bullish on the stock.
Alphabet Has Underperformed the Magnificent Seven
Although the company owns a very powerful search engine on this planet, it’s fallen behind the Magnificent Seven stocks in recent times. These are the one-year and five-year returns for each stock contained in the cohort.
One-year returns:
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Nvidia: 223%
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Meta Platforms: 171%
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Amazon: 77%
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Microsoft: 58%
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Alphabet: 56%
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Apple: 22%
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Tesla: -2%
Five-year returns:
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Nvidia: 1,579%
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Tesla: 882%
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Apple: 320%
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Microsoft: 260%
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Meta Platforms: 187%
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Alphabet: 157%
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Amazon: 106%
These are still impressive returns and outpace the S&P 500 (SPX) and Nasdaq 100 (NDX). Nevertheless, Alphabet has been outclassed by every Magnificent Seven stock except Amazon (NASDAQ:AMZN) over the past five years.
Alphabet Trades at a Great Valuation
While the stock has underperformed its peers contained in the cohort, Alphabet has a greater valuation than most tech corporations. The stock trades at a 24.5 P/E ratio and has solid profit margins. The company’s net profit margin normally exceeds 20% and can get an infinite boost in future quarters.
Alphabet has three components on its side: rising revenue, more profits, and cost-cutting measures. The tech giant reported 13% year-over-year revenue growth and 51.8% year-over-year net income growth in Q4 2023. Alphabet’s efforts to trim its workforce contributed to higher margins and look like ongoing.
A contributing factor to Alphabet’s rising net income is the recent profitability of Google Cloud. The cloud computing segment has been taking up an even bigger percentage of revenue and attributed to greater than 10% of Q4-2023 revenue. Google Cloud generated $9.2 billion of the company’s $86.3 billion in revenue. Google Cloud swung from a $186 million operating loss in Q4 2022 to generating $864 million in operating income in Q4 2023.
Google Cloud’s margins should improve significantly in future quarters and reduce the company’s P/E ratio by increasing its earnings.
Promoting Revenue Is Rebounding
While it’s nice to see Alphabet expanding in other verticals, it’s no secret that promoting is a very powerful engine for this corporation. Promoting sales slowed down in 2022 but came back to life in 2023. Its fourth-quarter results further highlight this fact and suggest that Alphabet has more to comprehend.
The fourth quarter featured $76.3 billion in Google Services revenue. This segment mainly consists of the company’s promoting and grew by 12.5% year-over-year. Promoting should receive an additional boost from the Olympic Games and the upcoming Presidential Election.
Higher promoting revenue also translates into more profits. While the similar could also be said about most businesses, Alphabet achieved a 35.0% operating margin with its Google Services segment in Q4.
AI Presents One other Long-Term Growth Opportunity
Amongst the various Magnificent Seven stocks, Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT) are the clear leaders within the substitute intelligence industry. Nevertheless, Alphabet could be poised to comprehend a meaningful slice of the pie through the usage of its existing technology and making latest investments.
Alphabet recently launched Gemini in a bid to bolster its AI presence. The tech firm also invested over $2 billion into an OpenAI competitor. Alphabet has been using artificial intelligence to reinforce its search results and cloud platform, but these investments represent the next steps to comprehend market share.
Alphabet can close the gap inside the AI race with Microsoft. The company began Google Cloud two years after Amazon got a head start with Amazon Web Services. Now, Google Cloud is a critical component of the company’s business. Alphabet has invested in numerous ventures generally generally known as Other Bets which could be growing at a high rate. While this segment makes up a small a component of total revenue, it’s value monitoring the gathering of corporations under the umbrella term.
Is GOOGL Stock a Buy, Consistent with Analysts?
Most analysts are bullish on Alphabet stock. The stock sports 29 Buys and eight Hold rankings from analysts, giving it a Strong Buy consensus rating. The average GOOGL stock price goal of $164.59 implies 14.3% upside potential.
The Bottom Line on Alphabet Stock
Alphabet is an under-the-radar stock (relatively) attributable to the impressive performances of other Magnificent Seven stocks. The tech giant has outperformed the market but has underperformed a lot of the firms in its cohort.
Rising revenue and profits from promoting and cloud computing present a tremendous opportunity. Alphabet also seems determined to comprehend more market share in artificial intelligence, which is a tremendous long-term move for the corporation.