The run in big tech is far from over and, in addition to Facebook Inc (NASDAQ:FB), the big tech name I like most is Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). GOOG stock is trading a marked discount due to the less “sexy” nature of its growth pipeline. But that growth pipeline is stable, and might just get a big boost in the near future from the self-driving and cloud markets.
Although many of Wall Street’s favorite tech names have posted explosive gains over the past 12 months, those same favorite tech stocks continue to rally to all-time highs. The latest bit of good news came from NVIDIA Corporation (NASDAQ:NVDA), the red-hot chip maker that just reported blowout numbers, underscoring that the shift to all-things-AI and all-things-cloud remains as strong as ever.
Of course, NVDA’s blowout report comes on the heels of each one of the FANG stocks delivering blowout reports. All those stocks have made all-time highs over the past several weeks and months.
All in all, big tech remains the sector to own in the stock market.
Google Cloud & Waymo Are Big Growth Catalysts
We all know about the digital advertising growth story at GOOG. Alongside FB, GOOG dominates the digital advertising world. That is a good place to be, since there are still a ton of dollars in transit from traditional advertising mediums to digital advertising channels. This mass shift in advertising dollars is why GOOG’s advertising revenue growth rate is still accelerating (up 21% last quarter versus high-teens growth in the prior two quarters).
But beyond the digital advertising growth narrative, GOOG has lesser-known catalysts which could drive GOOG stock materially higher in the long-term. Those growth catalysts are starting to come into the spotlight.
Firstly, Google Cloud will start to gain significant market share in the cloud space thanks to Big Retail names ditching Amazon.com, Inc. (NASDAQ:AMZN).
Big Retail is sending a clear message to Amazon right now: “you can’t have your cake and eat it, too.” Big Retail players don’t want to pay for a service provided by the very business which is stealing their sales and killing their margins. So they are dumping Amazon Web Services en masse. Wal-Mart Stores Inc (NYSE:WMT) was the first to do so. Target Corporation (NYSE:TGT) followed suit. Most recently, Kroger Co (NYSE:KR) bypassed Amazon for cloud investing.
These companies are mostly moving their money to Google and Microsoft Corporation (NASDAQ:MSFT). It’s also worth mentioning that Google Cloud should get a big boost from a recent salesforce.com, inc. (NYSE:CRM) partnership.
Secondly, Google’s self-driving unit, Waymo, is starting to make some serious noise in the self-driving automobile market.
In mid-October, Waymo became the first company to put fully self-driving cars on US roads without a safety driver. The self-driving unit of Google has been running fully self-driving car tests in Phoenix, Arizona. The tests have been going well, and Waymo plans to launch a self-driving, ride-hailing service in the Phoenix area soon.
That could be a huge deal. Just look at the valuations Uber ($70 billion) and Lyft ($11 billion) have amassed by being the dominant players in the non-automated, self-driving market. With Waymo, GOOG is set to become a major player on this scene. Also consider that GOOG is a big investor in Lyft and that the two have been working together on the self-driving front for some time.
Bottom Line on GOOG Stock
All in all, GOOG stock is a buy for 3 reasons:
- Digital advertising growth is accelerating thanks to consolidation of digital ad dollars among the biggest players
- Google Cloud is set for market share gains thanks to Big Retail ditching AWS
- Google is set to become a major player in the self-driving, ride-hailing market, which could add tens of billions of dollars (and likely more) to GOOG’s value
As of this writing, Luke Lango was long GOOG, FB, AMZN, TGT, NFLX, and NVDA.
