Tech giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has been building a decent head of steam until hitting a legal roadblock with its antitrust case. Though concerning, given Alphabet’s strong recent performance and leadership in search, I see the case as merely a temporary hiccup. Hence, GOOG stock presents an excellent buy-the-dip opportunity ahead of a sustained bull run ahead.
Following the recent correction, GOOG stock trades at much more appealing price multiples. It trades at 21.60 times forward non-GAAP earnings, 16% behind its 5-year average. Moreover, GOOG stock is trailing 14.4% below its 52-week highs, unlike its Magnificent Seven counterparts, which continued to hit new highs over the past year.
Lately, we’ve seen Alphabet honing its AI capabilities and building on its cloud prowess while tackling privacy and compliance challenges. At the heart of it is the firm’s dominance in digital advertising, foray into advanced AI-powered services and powerful cloud solutions. With that in mind, let’s dive deeper into the reasons GOOG stock makes an excellent opportunity.
Antitrust Ruling: A Minor Blip on the Long-Term Radar
As discussed earlier, GOOG stock took a dive when a federal judge recently declared Google’s dominance in search and text advertising an illegal monopoly. Alphabet plans to appeal the ruling of course, but many are concerned over its business implications.
Despite the challenges posed by the ruling, I feel Alphabet’s long-term bull case remains firmly intact. Its entrenched market position and superb user loyalty are likely to cushion the impact of the changes. Even with the plethora of alternatives, it’s unlikely that they will have any material impact on Google’s search dominance.
Moreover, the case essentially centers on exclusive deals Alphabet struck with smartphone giants such as Apple (NASDAQ:AAPL) and Samsung. It’s imperative to recognize that Google’s dominance in the search engine space was firmly established long before the advent of smartphones. Also, Bing and AI-powered upstarts are unlikely to take a sizeable chunk of Google’s market share anytime soon, given the pervasiveness of its service.
The obvious result of the ruling could mean hefty fines for the company. However, with Google’s massive revenue base, it’s unlikely that it will take a major hit from such financial penalties. The worst-case scenario for Google might involve rethinking its Android integration, potentially impacting how its apps are pre-installed or featured on devices. Though that presents potent risks for the company, it also offers Google a chance to evolve, as demonstrated by its recent AI-driven innovations.
Cloud Excellence Fuels Q2 Triumph
I’d be remiss when outlining GOOG stock’s bull case if I didn’t discuss its stellar second-quarter earnings report. It reported another sizable beat across both lines in Q2, marking its sixth consecutive quarter of outperformance.
Q2 revenues came in at $84.74 billion, an encouraging 13.6% increase from the prior-year period while beating estimates by $445.50 million. These results were driven by an impressive rise in sales from its core digital advertising segment. Sales from its “Google Search and other” segment jumped by 13.8% to $48.51 billion, while YouTube ad sales rose 13% to $8.66 billion.
On the flipside, Google’s network revenue dropped 5.22%, falling to $7.44 billion from $7.85 billion. However, those losses were somewhat offset by the 28.1% growth in its “Other Bets” segment, coming in at $365 million. Furthermore, despite the foreign exchange headwinds and rising content acquisition costs, Alphabet stock posted another earnings beat. The company’s Q2 EPS came in at a smashing $1.89, beating forecasts by five cents.
Perhaps the report’s highlight was the 28.9% revenue gain in Google Cloud to $10.3 billion. The unit turned a major corner with an operating profit of $1.17 billion, a substantial increase from the $395 million in the same period last year. Moreover, in Q2, Google Cloud solidified its standing in the global cloud space, increasing its share to 12% and up 100 basis points sequentially and year-over-year (YOY). These numbers point to Google Cloud’s momentum, capturing a record share of the $79 billion enterprise cloud spending during the quarter.
Bottomline on GOOG Stock
Despite facing recent antitrust hurdles, Alphabet remains attractive to investors with a long-term horizon. Much of it is due to its unshakeable position in search and digital advertising, supported by cutting-edge AI innovations and impressive cloud growth. Moreover, with Google layering AI across its ecosystem, its revenue potential is likely to expand significantly, solidifying its long-term growth prospects. Building on its stellar Q2 performance, marked by impressive Cloud gains, I anticipate Alphabet will continue to go from strength to strength. Also, with GOOG stock trading at attractive price multiples, it’s an ideal time to scoop it up on the dip.
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
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
