Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) is one of the “Magnificent Seven” stocks, but Alphabet stock itself is hardly the most exciting name out of this wild bunch of mega cap tech titans. That is, other “Mag 7″ components have delivered far more impressive levels of growth and price appreciation lately.
However, it’s not as if the Google and YouTube parent is an “also ran” in this category. After all, shares have bolted 26.1% higher since the start of the year, and are up 43.5% over the past twelve months. Those are hardly anything to sneeze at.
That’s not all. GOOG has further potential to keep steadily climbing. Why? After surging higher thanks to generative AI progress and profitability enhancements due to cost efficiency efforts, expect Alphabet keep leveling up, following this latest wave of success.
Alphabet Stock: Don’t Dwell on the ‘FUD Factors’
Alphabet shares have crushed it in terms of price performance, but that doesn’t mean that the stock has put many factors behind that, from time to time, help to create fear, uncertainty, and doubt among investors.
For instance, regulatory scrutiny. In one of our last Alphabet stock articles, we discussed the latest regulatory woes, and why these issues, while costly, aren’t the bull case destroyer some make them out to be.
Alongside regulatory-related headwinds, concerns about competition continue to have an impact on market sentiment. Specifically, concerns that a competitor, be it ChatGPT developer OpenAI or another Mag 7 company, will “disrupt” Google’s search dominance.
However, much like the regulatory concerns, this “FUD factor” may be overblown as well. As analysts at Morgan Stanley recently argued, Apple’s (NASDAQ:AAPL) recently-announced AI moves, including an OpenAI collaboration, aren’t likely to cause any disruption for Alphabet’s core cash cow soon.
Despite some search competitors beating Google to the punch with AI integration, the impact on Google’s market share hasn’t been significant.
Per Statista, Google’s search market share has only fallen from 84.69% at the start of 2023, to around 82% today. Put simply, don’t dwell on the FUD factors.
The Ingredients are in Place for Additional Steady Gains
After separating the truth from the fears with the “FUD factors,” let’s take a look at the many positives that point to higher price ahead for Alphabet stock. First, this company appears well-positioned to continue meeting and even beating expectations with its quarterly results.
The digital advertising space continues to benefit from a strong rebound, following the 2022 demand slump. This is of course promising for Alphabet’s Google Search and YouTube segments.
The company’s Google Cloud segment is also benefiting from favorable demand trends. Not only that, even as things are booming, Alphabet has found ways to further maximize profitability, through additional cost efficiency efforts.
In short, annualized earnings growth in the midteens, in line with sell-side forecasts, appears to be within reach. However, don’t assume this means that, at best, GOOG could rise by 10-15% over the next year.
Besides rising in tandem with earnings growth, as Barron’s contributor Emily Dattilo recently opined, there may be room for multiple expansion as well.
Alphabet’s onboarding of a new CFO, plus rising confidence in Alphabet’s generative AI strategy, could result in GOOG moving up to an earnings multiple in the high-20s, versus the low-20s, where it stands today.
The Verdict: Still a Solid Buy
Depending on the extent in which Alphabet “crushes it” in digital advertising, cloud computing, and generative artificial intelligence, a move to $200, or even $225 per share, by 2025 isn’t out of the question.
As the aforementioned Barron’s contributor also pointed out, a GOOG rerating could also propel this stock into the “$3 trillion club,” making it one of the more magnificent of the “Mag 7”.
Don’t forget, either, that Alphabet now pays a quarterly dividend. Granted, this payout is relatively small, and only works out to a 0.11% annualized yield. However, over time dividends could become a greater contributor to overall total returns.
If you currently own Alphabet stock, hold on tight to this top tech stalwart. If you’ve yet to buy, feel more than free to enter a position.
Alphabet stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
