There is no shortage of tech names that have reached new highs despite (or in some cases because of) the novel coronavirus pandemic. Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) is not one of those names, but GOOG stock is getting close.
Google is just 7% off all-time highs reached in February. At those levels, Alphabet had joined the trillion-dollar club. But as with other mega-cap names, the “trillion-dollar curse” struck. In this case, it was the market-wide sell-off that began in mid-February: GOOG stock dropped over 30% in a little over a month.
The market has regained its senses, as I thought it would. (To be fair, I wasn’t convinced it would happen quite this fast.) And GOOG has been a beneficiary. A look at the business, and tech more broadly, suggests there should be still more upside ahead.
Tech Rallies
Tech in particular has outperformed off the March bottom. As they should, investors have taken the long view. They’re not focusing on short-term disruption whose effects are temporary. Instead, they’re looking at the mid- to long-term opportunities that existed before the pandemic, and the opportunities being created in the “new normal.”
In fact, the value lost in tech in the sell-off has been mostly recaptured. The tech-heavy Invesco QQQ Trust (NASDAQ:QQQ), which I recommended at March lows, is just 1.4% off a February peak. And there’s no shortage of large-cap tech names at all-time highs.
That includes “stay at home” stocks like Zoom Video Communications (NASDAQ:ZM) and Peloton Interactive (NASDAQ:PTON). It also includes giants like Amazon (NASDAQ:AMZN), Adobe (NASDAQ:ADBE), and Nvidia (NASDAQ:NVDA).
What the market is pricing in right now is an acceleration of the long-term trends that drove tech’s rally before the pandemic. Those are the kind of trends that should back what I’ve called the “Roaring 2020s.”
To some investors, this rally seems surprising, if not foolish. Why are stocks rallying while near-term unemployment rises? It’s because investors are looking forward, not backwards. Tech’s growth may be larger and may arrive even quicker than we thought just a few months ago.
GOOG Stock Should Be Next
And so I’d ask investors: why should GOOG stock be any different?
The answer is: it shouldn’t. Alphabet is facing some short-term headwinds. Q1 results, for instance, looked soft. Revenue increased just 13% year-over-year, the slowest rate in five years. Again, that’s a short-term problem. Investors need to take the long view.
The search business isn’t going anywhere. YouTube viewership may only rise as more consumers cut the cord. And Google Cloud should see accelerated demand from remote working.
Amazon stock, for instance, has rallied not just because of its e-commerce business. It’s rallied because changing work habits are a benefit to Amazon Web Services. Google’s cloud business isn’t as large, but it should have a tailwind just the same.
From here, it seems like GOOG stock should be next in line to reach new highs. At this point, that only suggests about 7% incremental upside — but I don’t think Alphabet stock needs to stop there.
Autonomous Vehicles
There’s one more aspect of this market that looks exceedingly bullish for Alphabet stock. Investors are bidding up manufacturers of electric and autonomous vehicles.
Tesla (NASDAQ:TSLA) has more than doubled this year, and trades just off its all-time high. VectoIQ Acquisition (NASDAQ:VTIQ), which is merging with electric truck manufacturer Nikola Motor, has gone parabolic. China’s Nio (NYSE:NIO) has doubled since March.
In the context of that trading, Alphabet’s Waymo self-driving vehicle unit no doubt should be more valuable as well.
After all, Waymo is a leader in autonomous driving. And part of the reason that TSLA stock has rallied is that analysts see struggles at legacy automakers as a long-term benefit for its market share. The likes of Ford (NYSE:F) and General Motors (NYSE:GM) may not be able to invest in electric and autonomous vehicles if they need to protect their ICE (internal combustion engine) businesses.
That same thesis should apply to Waymo. Its leadership, backed by Alphabet’s balance sheet and now outside cash, should only extend going forward. And if that’s enough to send TSLA near all-time highs, that should help GOOG stock do the same.
To some extent, this good news is priced in by the big rally in Alphabet stock, but it’s not completely priced in. I expect GOOG stock to join the ranks of tech stocks beyond all-time highs — and that likely means double-digit upside from here.
Put another way, the rally in GOOG isn’t over yet.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
