Shares of Alphabet Inc (NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN) are on a one-on-one race to see which tech behemoth will be the first to reach $1,000 per share — an important psychological mark. But regardless of which stock is first to accomplish the feat, GOOGL stock still can print tons of profits in the quarters and years ahead.
Specifically, I believe Alphabet, fresh off reporting better-than-expected first quarter fiscal 2017 earnings, will deliver returns of 15% in the not-so-distant future.
In other words, GOOGL stock isn’t just heading to $1,000 … it’s going to make it to $1,100.
Reasons to Love Alphabet
Last week, Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE:BRK.B) suggested that he regretted not owning GOOGL during its infancy, but that Alphabet might have become a little too pricey. Buffett admitted Google’s parent and Amazon would have been better investments instead of International Business Machines Corp. (NYSE:IBM) several years ago.
But while Buffett is known for his value-picking strategy, his admission implied that Alphabet’s upside is now limited. GOOGL stock closed Wednesday at $942.14, about 6% away from $1,000. The shares have risen roughly 20% year-to-date, almost quadrupling the 5%-plus returns of the S&P 500.
But despite being priced at 23 times fiscal 2018 earnings estimates of the $40.25 per share, there is still tons of value in GOOGL stock.
The main drivers of the Google’s business haven’t changed. Alphabet recently showed that its core search business is not only driving higher user engagement, it was also encouraging to see increased volumes driven by a 44% rise in total paid clicks. What’s more, while Facebook Inc (NASDAQ:FB) is broadly regarded as dominating mobile, the strength of Google’s mobile platform was evident during the quarter.
Thanks to the management’s heightened focus on driving mobile experiences, Accelerated Mobile Pages (AMP) — a format that is being accepted by a number of publishers and sites across the world covering more than 700,000 domains — has paid huge dividends. This new mobile initiative has not only strengthened the company’s control on the browser via Android, it has also solidified distribution agreements with Apple Inc. (NASDAQ:AAPL).
Advertisers, who are looking for the best bang for their dollars, are compelled to be where users are.
Bottom Line for GOOGL Stock
The dominance of Facebook along with the emergence of Snap Inc (NYSE:SNAP) hasn’t slowed Alphabet down as an advertising destination. The fact that first-quarter ad revenue rose 18.8% to $21.4 billion showed the force Google continues to be. Rising operating margins are also promising.
With cash and short-term investments up $6.11 billion sequentially to around $92.44 billion — fueling innovations in other areas such as artificial intelligence — Alphabet has many routes towards sustainable growth in the quarters ahead.
This makes GOOGL stock, despite trading at 52-week highs, a strong bet to reach $1,100 per share.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
