Alphabet Inc (GOOG, GOOGL) has come a long way from its humble beginnings as a search engine software company managing a single webpage. From virtual reality technology to self-driving cars, GOOGL has stretched its tendrils into all parts of the tech world, and continues to shock investors with its forward-thinking innovations.
But now that Google stock has become a mammoth, trading at over $725 a share, some are wondering if that growth curve has become too steep.
The tough question management must answer for investors is: What will it take to push GOOGL stock to the next level?
The challenge of contemplating the “next level” is that it takes a lot of immediate growth to get one of the biggest companies in history to that place. Currently, Google stock tops out at around a $500 billion market cap. On a scale that large, another disruptive shift upward essentially requires bolting an entire Amazon.com, Inc. (AMZN)-sized asset onto the company.
That’s highly unlikely to happen, as it takes a lot of searching to accumulate $200 billion in Silicon Valley — which is what it would take to turn GOOGL’s current top into the new bottom.
So looking internally, GOOGL is banking on any of its various “moonshots” to carry the burden. The good news is that just about everything in management’s portfolio, other than search and web services, is at an extremely early commercial stage, if not actively experimental.
As a result, results-focused investors aren’t really betting on these moonshots to amount to anything, which means any money those ideas could potentially make in the future is not currently factored into the price of Google stock.
These Moonshots Could Take Google Stock to the Top
One of the longer-term plays under the GOOGL stock umbrella is Calico, an early-stage research and development company that focuses on combating aging and its associated diseases. Don’t expect anything in its pipeline to clear Phase IIA clinical milestones before 2024 — but that “next level” potential could emerge within five or six years if CEO Art Levinson is willing to pull back the curtains on the company’s curiously mysterious pharmaceutical projects.
It’s a similar scenario with Verily: GOOGL’s life science and medical technology branch. Further down the line, the business’ goal is to develop mini-medical devices like smart contact lenses, but at the moment, its biggest draw is a special spoon for shaky hands. The company occupies an interesting niche, but is still essentially pre-revenue until more concrete ideas come to fruition. It’s not likely to affect Google’s stock price any time soon.
Google Fiber is one of the company’s arms that actually has commercial potential in the here and now. Nobody really expects to see the network build out beyond 8 million homes over the next six or seven years, but that would still result in a project worth $50 million if all goes according to plan. And that number could be even greater if more recent estimates of Fiber reaching up to 20 million homes by 2022 come true.
It’s a step forward, if an incremental one, and it could be one of the more lucrative channels for Google in the future.
Finally, we get to the space age thrills with X, the home for Google’s self-driving cars, drones and robots, the Google Glass and more. If something truly transformative comes out of GOOGL, it will probably come from here, though I don’t think we’ll see anything too disruptive within the next few years. Even the Google Car, the company’s most talked about venture, won’t be available until 2020 at the earliest.
There are a few other smaller projects bustling under the wide GOOGL umbrella, but just about everything else — mobile payments, Android, Chrome, Google Plus — is already factored into the company’s 16% growth curve. These aren’t game changers. For example, for payments to take Google stock to the next leg up, it would need to grow to the size of Visa Inc (V). Right now, Google Pay can’t even get the traction of Square Inc (SQ), much less PayPal Holdings Inc (PYPL).
To be fair, I think GOOGL is an amazingly mature company, and I’m a fan. But like Apple Inc. (AAPL), the years of meteoric growth are behind it. That is of course, unless management is hiding something with instant revolutionary potential behind one of their many doors.
For now, the company is just taking small steps to maintain its lead.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
