Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock may be beaten down, but it is one of the few companies in the tech sector that has performed well despite this year’s headwinds.
Between inflationary pressures, supply chain hiccups, and the Fed’s hawkish stance, lots of tech stocks have struggled. Google should inspire confidence with its multiple growth catalysts and a financial profile that never ceases to amaze.
Alphabet has been a growth juggernaut for more than a decade. It has established its position as a leader in digital advertisements, generating over 80% of its revenues from the space.
On top of that, its smaller businesses are also gathering a lot of momentum. Hence, there appears to be a clear path towards sustainable long-term growth. This should make it particularly attractive to new investors who can benefit from this rare weakness in GOOG stock.
Hardware Could Be Big
Looking at Alphabet’s recent investments, it’s apparent that hardware will play a major role in its future growth.
The company has already made substantial inroads in smartphones, smart home devices and other niche segments.
Google is already gaining traction in multiple hardware niches. Perhaps it’s been the most successful in the smart speaker business, where it now commands a 20% market share.
In an attempt to increase its market share, Alphabet is releasing new products such as Astro’s robot to separate itself from its peers. Also, the company is doubling the production of its Pixel smartphones due to higher demand.
The success of its hardware segment will feed Alphabet’s growing subscription business. According to the company management, YouTube Premium and Music have more than 50 million subscribers.
Alphabet also started a subscription service for its Pixel phones. The service provides access to all its Google services, significantly improving customer loyalty.
The Success of Google Cloud
Cloud has been a major source of revenue for Alphabet over the past few years. Last year, Google Cloud generated a whopping $19.2 billion in sales, representing a 47% improvement from the prior-year period. Its growth rate came in even higher than industry leader Amazon (NASDAQ:AMZN).
Google has done well to trim its losses from the cloud segment in the past few years. Its operating loss margin was 43% in 2020, which meaningfully improved to 16% for the whole of 2021.
“In our view, as we’ve said repeatedly, is we continue to think our cloud opportunity is still in the early innings,” CFO Ruth Porat recently said of Alphabet’s focus on its cloud business.
The Bottom Line on GOOG Stock
Analyst targets for GOOG stock have recently been increased on the back of the company’s solid earnings report. The consensus price target is $3,388. That represents a significant upside from the $2,519 it trades at today.
Though that number is encouraging, I feel the company has even more upside as the market prices in the potential of its hardware and niche businesses.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
