We came across a bullish thesis on Alphabet Inc. (NASDAQ:GOOG) on Business Model Mastery’s Substack by The Antifragile Investor. In this article, we will summarize the bulls’ thesis on GOOG. Alphabet Inc. (NASDAQ:GOOG)’s share was trading at $196.71 as of Jan 7th. GOOG’s trailing and forward P/E were 26.09 and 22.17 respectively according to Yahoo Finance.
Photo by Firmbee.com on Unsplash
Alphabet, the parent company of Google, stands as the unrivaled leader in digital advertising while strategically expanding into cloud computing and experimental ventures. The company’s dominance is anchored by its Google Services division, which generated 88% of Alphabet’s $282 billion revenue in 2023. Advertising alone accounted for over 80% of total income, powered by an AI-enhanced ad platform that delivers precision-targeted campaigns. YouTube, a vital pillar within this ecosystem, contributed $41 billion in ad revenue, growing 11% year-over-year. Complementing its ad revenues, YouTube Premium caters to users preferring an ad-free experience, adding further diversification to Alphabet’s income streams.
Google Cloud is emerging as Alphabet’s fastest-growing segment, recording $40 billion in revenue in 2023 with a 22% year-over-year growth rate. While still trailing AWS and Azure, Google Cloud achieved a key milestone with a 3% operating margin, signaling its gradual march toward sustainable profitability. Its AI-driven tools, such as Vertex AI, set it apart in the competitive cloud space, making it increasingly attractive to enterprise clients.
Alphabet’s “Other Bets” segment showcases the company’s commitment to innovation, housing experimental projects like Waymo, the autonomous vehicle division, and Verily, a healthcare initiative. Though collectively contributing less than 2% of total revenue, these ventures embody Alphabet’s vision for the future. However, their financial impact is mixed, with Waymo alone incurring nearly $4 billion in annual operating costs, highlighting the high-stakes nature of these initiatives.
Despite its strengths, Alphabet faces risks tied to its reliance on advertising, which makes it susceptible to shifts in ad spending, especially as competitors like Amazon Ads gain traction. Scaling Google Cloud’s profitability also poses challenges as Alphabet continues to invest heavily in AI and infrastructure.
Overall, Alphabet’s leadership in digital advertising, combined with its growing cloud business and visionary projects, offers a compelling long-term growth story. However, the company must navigate its dependency on advertising and the financial demands of its ambitious ventures to fully capitalize on its potential.
Alphabet Inc. (NASDAQ:GOOG) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 160 hedge fund portfolios held GOOG at the end of the third quarter which was 165 in the previous quarter. While we acknowledge the risk and potential of GOOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.