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Alphabet Stock: Heavily Discounted, Cloud Growth Underrated
Stock Analysis & Ideas

Alphabet Stock: Heavily Discounted, Cloud Growth Underrated

Shares of search behemoth Alphabet (GOOGL) have been experiencing pressure amid the market correction.

Like a handful of its peers in the FAANG cohort, Alphabet delivered exceptional fourth-quarter earnings results that failed to sustain a rally. Indeed, it seems as though broader market woes are causing some to forget about Alphabet’s remarkable strength, which should shine through once volatility is given a chance to subside.

For now, I view Alphabet as a name that’s been unfairly tossed into the bargain bin. The company is firing on all cylinders, with many high-quality business segments, including YouTube and its Cloud business, that stand to become even better with time.

Despite the tremendous selling pressure facing this broader market, I remain bullish on GOOG stock.

Alphabet’s Clocks in Q4 to Remember

The initial post-earnings reaction was very positive, but it didn’t take long for the market to drag shares back to where they were before the big reveal. It’s as though Alphabet’s big Q4 beat came (mostly) for free when shares retreated from nearly $3,000 per share to back below $2,700.

Sometimes the market just has it wrong. In an environment that punishes extended valuations and a lack of profitability prospects, Alphabet is an innocent firm undeserving of such excess selling pressure.

Not only did Alphabet crush expectations on the earnings front, but things were looking up across almost every segment, ranging from Search to YouTube and even Google’s Cloud business.

Indeed, Google is synonymous with search, given its dominant share in the space. However, it’s the latter two segments (YouTube and Cloud) that could become more meaningful growth drivers moving forward.

Google Cloud: In Third Place… for Now

Today, Google Cloud is trailing Microsoft (MSFT) Azure and Amazon (AMZN) Web Services in the cloud scene. Still, the bull case sees Alphabet continuing to add to its cloud strengths to catch up.

Amazon is the public cloud kingpin to beat. It will not be easy to challenge the disruptive firm, but Alphabet does have an intriguing plan that could allow it to gain cloud market share.

If anything, not having a leading share in a lucrative market should be viewed as more of an opportunity to take share than a shortcoming, especially under the leadership of a seasoned veteran like Thomas Kurian, the current CEO of Google Cloud.

Kurian has made big reorganizational moves behind the scenes to bolster Google Cloud’s growth over the past year. The man is hungry to bring cloud revenue growth to the next level, and early signs show that his efforts are starting to pay off.

Google Cloud Growth is Encouraging

For the latest quarter, Google Cloud saw 45% in top-line growth. A very nice reacceleration that’s nothing short of encouraging.

These robust numbers in the cloud may very well be just the start, as Kurian and his team look to play the game of “taking share” in a market where Google currently stands third.

The public cloud space is still growing very fast. If Google can take meaningful share while benefiting from industry tailwinds, the segment could grow to become a more meaningful diversifier from Google’s ad-owned software and services.

Now, there’s nothing wrong with having Google’s ad business comprising an overwhelming majority of revenues. It’s proven incredibly robust to date. If anything, it stands to become even stronger as Apple (AAPL) penalizes Meta with its privacy-focused iOS updates.

Diversification, though, is always a good thing.

Even if Google can’t put a dent in the share of its two larger rivals in the cloud, it can still take a considerable amount of share away from smaller vendors with its reliability focus.

More Undervalued than Meta?

Unlike controversial social-media and metaverse firm Meta Platforms (FB), which also changed its name to highlight its broadening focus, Alphabet has the tides turned in its favor.

Given such remarkable strengths, Alphabet may actually be the more undervalued FAANG stock despite its seemingly heftier valuation.

Alphabet deserves a premium for its growth, given its wide moat seems less penetrable than the likes of a Meta, a firm that’s really starting to feel the pressure of rivals.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, GOOGL stock comes in as a Strong Buy. Out of 31 analyst ratings, there are 31 Buy recommendations.

The average Alphabet price target is $3,498.71, implying an upside of 31%. Analyst price targets range from a low of $3,000 per share to a high of $3,900 per share.

Bottom Line on Google Stock

Alphabet is doing almost everything right. It clocked in one of the best results this latest earnings season. Despite this, the stock has continued to stumble over broader market woes.

With meaningful momentum in ads, YouTube, and Google Cloud, I’d argue that the trio can power GOOG stock much higher for many years to come. The cloud business, in particular, is a costly endeavour that could keep the company’s sales growth elevated for a very long time.

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