July has come to a close, and the world's biggest technology companies just finished reporting their financial results for the quarter ended June 30. Challenging economic conditions led to a slowdown in growth across the tech sector over the past 18 months, so investors are eager to get their hands on every new quarterly report to assess how companies are faring.
Google parent Alphabet (GOOG 0.07%) (GOOGL 0.11%) was the standout performer among its big-tech peers this time around. Its stock price jumped 7% the day after it reported its second-quarter results, thanks to signs the advertising market is recovering and a strong performance from its cloud business.
Here's some better news for investors: Alphabet stock still trades 11% below its all-time high, and it's incredibly cheap compared to its peers. Here's why it's a great buy right now.
Advertising bounces back
With inflation running hot and interest rates still climbing, consumer spending took a hit because more of people's income is going toward debt repayments and everyday necessities. In response to this concern about lower consumer spending, businesses are spending less money marketing their products for fear of a lesser return on investment. That's bad news for Alphabet's Google Search and its YouTube streaming platform because both rely on advertising to generate revenue.
In the first quarter of 2023 (ended March 31), Google Search revenue grew by just 1.9% year over year, and YouTube revenue declined. But in Q2, search revenue growth accelerated to 4.7%, and YouTube returned to growth with revenue increasing by 4.4% year over year. It's a positive sign that the ad market is recovering, and it was corroborated by social media giant Meta Platforms, which also saw an acceleration in ad revenue in Q2.
YouTube's momentum will likely continue. It now has 2 billion monthly active users engaging with its Shorts short-form video platform, up from 1.5 billion a year ago. That places it ahead of ByteDance's TikTok, which has been considered an industry leader. Plus, more than 150 million people access YouTube via their connected TV in the U.S. alone. This will likely grow as more premium content rolls out, which includes the NFL's Sunday Ticket.
Artificial intelligence (AI) might be one reason Google Search is doing better. While it dominates the search industry with a 92.6% market share, it has come under threat this year from Microsoft's Bing, which is now integrated with OpenAI's ChatGPT chatbot. Bing is trying to change the way people seek information online because chatbots can deliver more direct answers to queries rather than forcing users to navigate through multiple web page suggestions to find what they're looking for.
It prompted Google to launch its own chatbot called Bard. But AI is now also powering traditional Google searches -- when a user enters a query, Google's generative AI produces a paragraph of text at the top of the page with what the AI considers the best answer. And its answers are continuously improving. Google says it has halved the amount of time it takes AI to serve those answers over the last few months.
But Google Cloud was the true star in Q2
As the above graphic shows, Google Cloud revenue came in at $8 billion in Q2, marking a 28% year-over-year increase. That was a faster growth rate than one of Google's main competitors, Microsoft Azure, which grew revenue by 27%. Google Cloud is still much smaller than Azure, but the faster growth indicates it's gradually snatching market share.
The cloud is a critical part of most businesses today because it enables them to store and analyze data, host sales channels, and develop software entirely online. Given most organizations now store their valuable data in the cloud, it's also where the most advanced AI tools are built, trained, and deployed, and Google Cloud is fighting for a slice of this fast-growing segment.
In Q2, more than 70% of generative AI unicorns (start-ups with valuations of $1 billion or more) were Google Cloud customers because it provides the widest choice of AI supercomputers. It offers more than 80 AI models, which can be trained for different purposes, in the cloud, as well as a 15-fold increase in customers from April to June. Models like Conversational AI and Search saw particularly high demand, as did Vertex, which is a low-code AI development platform.
Google Cloud's portfolio of AI products will continue to expand. The platform is helping banks fight fraud and money laundering, it's driving more effective cybersecurity, and it's helping to improve customer service workflows.
Alphabet stock is cheap right now
Although Alphabet's stock price has jumped 50% in 2023, so far, it's still down 11.6% from its all-time high.
The company delivered $1.44 in earnings per share in Q2, a 19% year-over-year increase, far outpacing its revenue growth of just 7%. That's because it carefully managed costs, with marketing spend basically flat in the quarter and administrative costs falling. Like many of its tech peers, Alphabet has laid off employees this year, and the cost savings are now flowing to its bottom line.
Alphabet has generated $4.72 in earnings per share over the last four quarters, so based on its current stock price of $132.58, it trades at a price-to-earnings (P/E) ratio of just 28.1. That's an 18.7% discount to the 34.6 P/E of the Nasdaq-100 index, which hosts many of Alphabet's big tech rivals.
Given the acceleration in Google Search revenue, YouTube's return to growth, and Google Cloud catching its competitors, there will likely be further improvement in Alphabet's earnings throughout the rest of this year. Looking at Wall Street's estimate of $5.54 in 2023 full-year earnings, Alphabet stock trades at an even cheaper (forward) P/E ratio of 23.9.
As a result, Alphabet might be the most attractive bet of any big tech stock right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
"stock" - Google News
July 31, 2023 at 10:43PM
https://ift.tt/BNlHuyT
1 Trillion-Dollar Growth Stock Down 11% You'll Regret Not Buying on the Dip - The Motley Fool
"stock" - Google News
https://ift.tt/120mZcl
https://ift.tt/T0pL8Nh
Bagikan Berita Ini
0 Response to "1 Trillion-Dollar Growth Stock Down 11% You'll Regret Not Buying on the Dip - The Motley Fool"
Post a Comment