GOOG Stock Analysis: Why Is Alphabet a Strong Buy? (Hint: It's More Than AI) (2024)

Now is a great time to buy-the-dip in technology giant Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL). GOOG stock has been hit by two negative forces. The first is the rotation of investor capital out of the mega-cap tech stocks. This stock led the market rally in this year’s first half. The other is Alphabet’s recently released second-quarter financial results.

Alphabet beat Wall Street forecasts on the top and bottom lines and showed significant growth in its cloud computing business. However, Alphabet stock got dinged because YouTube’s advertising revenue came in lighter than anticipated.

The disappointing ad sales from YouTube don’t take away from the fact that Alphabet remains a leading technology company. It is highly diversified and whose stock has been a long-term winner for shareholders. Alphabet stock has risen nearly 200% in the last five years. The company achieved a $2 trillion market cap for the first time in April of this year.

Cloud Computing Growth

As mentioned, Alphabet put up strong Q2 numbers. The company announced EPS of $1.89 compared to $1.84. This was the consensus forecast among analysts. Revenue totaled $84.74 billion versus the expected $84.19 billion from Wall Street. Sales were up 14% from a year earlier. The better-than-expected print was largely attributed to Alphabet’s Google Cloud unit, which surpassed $10 billion in quarterly revenues and $1 billion in operating profit for the first time.

Less than two years ago, Google Cloud was unprofitable and a drag on Alphabet’s financial results. Now, the unit is one of the company’s top performers. Google Cloud is also gaining on rivals such as Amazon Web Services (NASDAQ:AMZN) and Microsoft Azure (NASDAQ:MSFT). Google Cloud has risen to become the third largest cloud computing vendor in the world with an 11% market share, gaining ground on both larger and smaller competitors.

While much is made of the fact that Alphabet is a leading artificial intelligence (AI) firm through its DeepMind laboratory, in reality the company is highly diversified and a global leader in many different areas. Beyond cloud computing and AI, Alphabet reported online advertising revenue of $64.62 billion, up 11% from a year earlier, mostly from its Google search engine. The company is also involved in everything from self-driving cars to its Pixel smartphones.

Wiz Deal Called Off

Alphabet also continues to grow strategically, having recently engaged in talks to acquire privately held cybersecurity firm Wiz for $23 billion in what would have been its biggest deal ever. Wiz was founded in 2020 and provides cybersecurity for cloud-computing platforms. The deal would have been Alphabet’s largest acquisition ever. However, that deal was ultimately unsuccessful, with Wiz walking away and saying that it plans to hold an initial public offering (IPO) later this year.

The Wiz deal falling through proved to be fortuitous coming as it did just as cybersecurity firm CrowdStrike (NASDAQ:CRWD) and Microsoft’s software glitch crashed information technology (IT) systems around the world, grounding flights and postponing medical procedures in countries from Germany to the U.S. The Wiz deal also wasn’t Alphabet’s first cybersecurity acquisition. The company bought cybersecurity firm Mandiant for $5.4 billion in 2022.

Alphabet executives have said that growing their cybersecurity offerings, particularly in the cloud, remains a key focus of the company. All of this makes GOOG stock a strong buy.

Quarterly Dividend

From a shareholder perspective, another reason to be bullish on GOOGL stock is that Alphabet earlier this year declared its first-ever dividend payment. The company paid a cash dividend of 20 cents per share on June 17, its first-ever distribution to stockholders. In addition to the quarterly dividend, Alphabet also announced a new $70 billion stock buyback program.

The company is able to offer a dividend as it is cash-rich, with more than $100 billion on hand currently. The dividend payment was welcomed by both investors and analysts who have been calling for years on the tech giant to bolster shareholder returns through dividend payments and stock buybacks. News of the dividend payment was largely responsible for Alphabet’s market capitalization surpassing $2 trillion this spring.

Buy GOOG Stock

Alphabet remains a great investment. The company’s share price has gained nearly 500% in the last decade, surpassing both the benchmark S&P 500 and technology-laden Nasdaq Composite indices. A $10,000 investment in GOOGL stock back in 2014 would be worth nearly $60,000 today. With strengths in several different areas, notably AI and cloud computing, investors would be smart to take a position in this best-of-breed technology company. GOOG stock is a buy.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Joel Bagloleheld long positions in GOOGL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.