Dividend Stocks

The Best Mega-Cap Stock? Here’s What’s Ahead for GOOG

Alphabet (NASDAQ:GOOG) has endured a rocky start to 2023, but the tech titan now looks poised to rebound in my view. The botched launch of chatbot Bard disappointed many investors. However, Google seems to be emerging as an AI winner despite early stumbles. With rock-solid positions in search and video, sustainable growth lies ahead.

Let’s look at some of the tailwinds supporting GOOG stock, and why this is a long-term tech stock worth holding for the long-term.

Google Ended Up Benefiting More From AI Than Its Competitors

There’s no denying Alphabet rushed Bard to market, likely in response to Microsoft (NASDAQ:MSFT) swooping in with mega-chatbot ChatGPT. The underwhelming debut led many to prematurely forecast AI as an existential threat to Google’s dominance. But those predictions ignored Alphabet’s vast resources and technical capabilities.

Fast forward to today, and it appears Alphabet will remain king of the internet rather than being “replaced” by AI. In fact, AI may even drag on competitors instead. Case in point – ChatGPT traffic has steadily declined since its viral launch, proving novelty fades fast. And Microsoft’s integration of the AI bot into its Bing search barely budged its insignificant market share. Google wins here, in my opinion.

Alphabet’sLong-Term Growth Levers

Critically, search remains Alphabet’s cash cow, delivering over 57% of total ad revenue. Despite economic uncertainty, Q2 search sales accelerated to 5% growth year-over-year. Search clearly remains integral to consumer journeys. Alphabet’s AI can only enhance relevance and value.

Beyond search, Alphabet boasts numerous vibrant growth levers like Google Cloud, YouTube ads, hardware, and more. Let’s take YouTube. Alphabet disclosed over $40 billion in annual YouTube revenue in March 2023 across ads, subscriptions, and commerce. And Shorts, its TikTok clone, just crossed 2 billion monthly viewers after reaching 1.5 billion in 2022. YouTube’s growth runway remains long.

Meanwhile, revenue in the company’s Google Cloud segment grew 28% year-over-year in Q2. AI-optimized infrastructure drove uptake as over 70% of AI startups partner with Google Cloud. While consumption moderated amid economic uncertainty, this secular trend bodes well for the company’s long-term prospects.

Alphabet is also tightening spending as uncertainty stays sticky, but it continues investing in leading-edge AI, data centers, and moonshot bets through its Other Bets segment. Cash flow, fortunately, remains ample, totaling $21.8 billion in Q2. Thus, Alphabet can very easily continue to fund growth and buybacks simultaneously.

GOOG Stock Still Offers a Compelling Entry Point

Analysts forecast Alphabet’s revenue to double by 2032, reaching nearly $605 billion. Meanwhile, the company’s earnings per share could approach $15.10 by then, up from $5.65 in 2023.

Granted, distant forecasts carry increased uncertainty. But Alphabet’s obvious competitive advantages in search, video, and cloud computing bode well for repeating last decade’s double-digit annual growth.

Factoring in today’s valuation despite the macroeconomic turbulence, I believe Alphabet stock could reach $200-$250 per share by 2026. This aligns with the fair value estimate of ~$180 from Gurufocus by the end of 2025.

The Bottom Line

In summary, while AI rocked Alphabet initially, its dominant services seem poised to endure and prosper. With solid growth and reasonable valuation, GOOG stock remains a compelling mega-cap equity to own. Owning the internet’s two most essential services, search and video, gives Alphabet a position to outpace other tech titans over time. Its growth story remains intact, in my view.

Could shares meander a while longer? Certainly. Recession fears persist, and the macro backdrop isn’t as rosy as it was two years ago. But for long-term investors, accumulating Alphabet over time has proven to be a wise decision. Leaders will separate themselves again once conditions improve.

On the date of publication, Omor Ibne Ehsan 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.