The momentum behind Google parent company Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) stock continues with a 4% increase over the past week.
GOOGL stock continues to outpace other major technology companies and the broader market with a year-to-date gain of 62%. Opening at $2,783 a share, Alphabet is now up 79% over the last 12 months and shows no signs of slowing down anytime soon. Despite the spectacular run this year, Wall Street forecasts more gains for Alphabet in the coming months with an average price target of $3,200.00, implying a further 13% increase. Investors should consider buying shares now as Alphabet continues to run hotter than the rest of the stock market.
Advertising Engine
Google continues to be an online powerhouse. Nearly three billion people worldwide regularly use Google products and services ranging from Gmail and Calendar to Google Docs. Add in video streaming site YouTube, and it should come as no surprise that Alphabet remains an online advertising engine.
More than 80% of Alphabet’s revenue today comes from Google ads, which amounted to $147 billion in revenue last year. Google has been the market leader in online advertising for more than a decade now and holds a 29% share of global digital ad spending.
As companies emerge from the pandemic and move more of their spending online to buy digital advertisements, Alphabet is positioned to capitalize. Statista forecasts that digital advertising spending will grow to $645 billion by 2024 from $378 billion in 2020. A good chunk of that money will flow to Alphabet through its Google products and services, as well as YouTube.
With its robust ad business, Alphabet is literally a cash cow. The company reported that it had $136 billion in cash on hand at the end of this year’s second quarter. While some of that cash is being used to repurchase GOOGL stock, there’s plenty left for Alphabet to invest in new business ventures and technologies, and save for a rainy day.
GOOGL Stock’s Contribution to Google Cloud
While online advertisements remain Alphabet’s bread and butter, it has a new and emerging growth engine with Google Cloud. While still contributing a relatively small slice to Alphabet’s overall business and profitability, Google Cloud is currently the company’s fastest-growing segment. In 2020, Google Cloud’s revenues rose 46% to $13.1 billion as the usage of its cloud services ramped up during the pandemic. And, the Cloud segment’s revenue rose a further 50% on an annual basis to $8.7 billion in this year’s first half.
Although Google Cloud remain unprofitable for the time being, it is currently the third-biggest cloud services company. According to market research firm Canalys, Google Cloud is only behind Amazon (NASDAQ:AMZN), Web Services (AWS), and Microsoft (NASDAQ:MSFT) Azure. It likely won’t be long before Google Cloud rivals even with Amazon and Microsoft. As it continues to grow and secure an impressive number of partners such as Target (NYSE:TGT), Twitter (NYSE:TWTR), and PayPal (NASDAQ:PYPL). Alphabet has made clear that it plans to subsidize the expansion of Google Cloud through its advertising business until such time as that part of its business does become profitable.
Invest in the Long-Term Growth of GOOGL Stock
Alphabet is not only one of the best performing technology stocks this year, it’s one of the best performing stocks. With a 62% year-to-date gain and more runway in front of it, investors would be smart to take a position in Google stock and hold it for the long-term. Since it started in February, Alphabet shares have managed to thrive with heavy rotations in and out of various sectors. With its online ad business going gangbusters and its cloud services offering taking market share, there’s plenty of reasons to be bullish on Alphabet. GOOGL stock is a buy.
On the date of publication, Joel Baglole held long positions in GOOGL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
