Google (GOOGL) stock has been a great retirement holding ever since it made its debut almost 10 years ago, but whether GOOGL can keep racking up such hot outperformance over the decades to come is much less clear.
After all, GOOGL, as dominant as it may be now, is still a technology stock, and those have a way of getting clobbered by innovations and developments the market never sees coming. It’s not like there’s a shortage of once high-flying tech companies that have disappeared since GOOGL went public in 2004.
It’s also extremely unlikely for Google stock to match its performance of the last 10 years over the next decade, if only because it has grown so large. GOOGL started with a market cap of $23 billion back in the day, or about $29 billion adjusted for inflation. Today, Google stock has market value of $395 billion.
It’s so much easier to grow exponentially off a small base that there’s almost no way the next 10 years of Google stock growth is going to match the last 10. C’mon, just look at this chart:
Google stock has outperformed the S&P 500 by more than 900 percentage points on a price basis since GOOGL went public. (That’s a great retirement stock, by the way.) No, a repeat performance is unlikely. But GOOGL still looks like a good long-term holding for retirement — even with all the seismic changes constantly rattling its industry.
Indeed, GOOGL recently wrapped up an annual developers conference that left a number of Google stock bulls more confident about the company’s long-term strategy, because GOOGL has a cogent plan for defending its bread-and-butter business of search-based ads.
Google Stock vs. The Bears
A key pillar of the bear case against Google stock — particularly as it relates to being a retirement stock — is that the future belongs to mobile devices. When it comes to these smaller gadgets with their smaller screens, users prefer to use apps rather than the web for everything from social networking to shopping.
That risks cutting GOOGL out of the equation. Happily for holders of Google stock, the company is moving aggressively to defend its revenue streams.
As analysts at Bernstein Research sum it up:
“A new way to articulate the bull case for Google: distinctive cloud capabilities to every device, in every realm, powered increasingly by powerful cloud services … The investment case for Google rests largely on the trajectory of search advertising revenues. During [the developers conference] we observed the fast pace of innovation … on a number of fronts, the fact that Google is addressing what is perhaps the most important remaining structural bear case on the stock, by blurring the lines between the mobile Web and native apps, and the increasing preeminence of its cloud services in the mobile realm and (possibly) beyond.”
For example, a key initiative GOOGL announced is that it’s targeting the next billion Android users through special designs for inexpensive smartphones. (Google already has a billion Android users. The next billion will come from markets where low-cost phones are a must.) GOOGL is also going to extend Android from the cloud and mobile to other devices and contexts, such as wearable connected gadgets and cars. (GOOGL doesn’t want to miss the Internet of Things.)
But the bottom line, in the analysts’ view, is that cloud-based services are the future, the web is still the world’s largest and most important cloud, and GOOGL is the preeminent business on the web.
In that way, GOOGL is far ahead of the competition. Indeed, Google “is using its very strong and arguably unparalleled cloud services capabilities as a long-term strategic weapon,” the analysts write.
When it comes to tech stocks, the very nature of the industry makes it hard to have confidence in any name as a retirement stock if you’re talking holding periods of decades. Thanks to its dominance on the web — and by extension, the cloud — Google stock looks like as good a tech-stock retirement bet as any.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.