Alphabet shares are trading below $100. I buy
Alphabet (NASDAQ: GOOG) The stock has seen a major pullback recently. Not too long ago, the stock was trading near $150 ($3,000 before the recent stock split). Today, however, it can be had for less than $90.
After this pullback, I see value on the table here. So I took the opportunity to buy more Alphabet shares for my portfolio. Here’s why I’m bullish on the Big Tech company.
Why I bought more Alphabet shares
Alphabet’s third-quarter results, released last month, showed the company’s growth has slowed recently. For the quarter, revenue was $69.1 billion, up just 6% year-on-year (11% growth at constant currency).
I am not surprised by this low level of growth. Alphabet derives most of its revenue from advertising on its Google and YouTube platforms. And due to the uncertainty in the global economy, it’s a weak environment for advertising right now.
I don’t expect this weak environment to last forever. At some point in the not too distant future, economic conditions should improve and advertising spending should pick up. If so, Alphabet’s revenue (and share price) should be boosted.
Growth of cloud computing
However, Alphabet is not just about digital advertising. Another growth driver is cloud computing. Alphabet is currently the third largest cloud provider behind Amazon and Microsoft. And in the third quarter, year-over-year revenue growth was 38%.
Looking ahead, the cloud computing industry is expected to grow at a steady pace over the next decade. So I expect Alphabet’s revenue in this segment to continue to grow.
On top of that, there is considerable potential in its “Other Bets” division. This division includes its self-driving car subsidiary, Waymo, which is a leader in self-driving.
It should be noted that earlier this year, Waymo was granted a self-driving taxi service license by the California Public Utilities Commission (CPUC). This allows it to offer self-driving taxi service in certain areas of California under certain conditions.
Combine digital advertising, the cloud, self-driving cars, and all the other exciting things Alphabet is involved in (artificial intelligence, biotech, smart home tech, health data, etc.), and there’s great potential here. long-term growth. .
The Rotation Out of Big Tech
Of course, there are some risks to consider with Alphabet shares.
The main risk that concerns me is that we are currently seeing a massive rotation of the technology sector (especially Big Tech) towards other areas of the market such as energy. These changes tend to take time to unfold. Thus, Alphabet’s share price may remain under pressure for some time.
Another risk is competition from TikTok. YouTube has its “Shorts” to rival TikTok, but these videos don’t generate as much revenue as traditional YouTube videos.
I’m an Alphabet stock buyer here
With the stock over 40% off its highs and currently trading on a forward-looking price/earnings (P/E) ratio below 20, however, I like the long-term risk/reward proposition. At current levels, I’m a long of the stock.
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Ed Sheldon holds positions at Alphabet (C-shares), Amazon and Microsoft. The Motley Fool UK recommended Alphabet (A shares), Alphabet (C shares), Amazon and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.
Motley Fool United Kingdom 2022