3. Alphabet Inc (GOOG, GOOGL)
Alphabet Inc. (GOOGL) is an American global technological conglomerate holding company. Company is one of the most valuable companies in the world and is the world’s third largest technology company. The parent of Google has a $1.5 trillion market cap, and owns YouTube, Nest, and Waze.
Alphabet’s key revenues are coming from cost-effective online advertising; cloud-based solutions that provide customers with infrastructure and platform services and collaboration tools; sales of other products and services, such as apps and in-app purchases, digital content products, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV. Company’s mainly expenses are attributed to sales and marketing, general and administrative functions and R&D.
Overall, the technology market is one of the most growing industries in the market and globally, the US IT sector holds a 33% market share. Alphabet Inc is gaining competitive advantage in the industry by buying other companies, gaining new technologies, patents, and improving its products and services. We believe Alphabet Inc is undervalued given its double digit topline growth rate. Current Alphabet Inc share price is $117. We like Alphabet because of its exposure to artificial intelligence and autonomous driving opportunities. Moreover, Alphabet Inc makes investments in data centers, information technology assets and grow its current services and products at a rapid clip. Alphabet Inc reported a 13% revenue growth for the second quarter and has approximately %5 of free cash flow yield.
While a company holds a lot of promise for the future, there are some risks to be careful about before investing. Most of Alphabet’s revenue is coming from advertising. Companies might cut their advertising budgets sharply during recessions. Moreover, there can be regulation problems. Antitrust, data privacy, and Section 230, gives online platforms the freedom to control content while shielding them from accountability for posts made by their users, are among the issues that may negatively affect the company in the future.
Alphabet Inc manages Environmental, Social and Governance relationships well. One of its goals is to make net-zero emission in its operations and value chains by 2030. It also aims to replenish more water than it uses by 2030. Company’s long term prospects are to preserve the environment and help people with technology. According to the ESG reports Google wants to develop AI responsibly and thoughtfully. They are emphasizing the importance of building AI ethically and socially beneficially.
Alphabet Inc is doing well on the growth front and is one of the best companies to invest in as digital transformation carries on. Ensemble Fund describes Google as “one of the most extraordinary businesses of the digital age. Its mission is “to organize the world’s information and make it universally accessible and useful. “When you think about the mass adoption of the Internet, smartphones, social and digital media, and ecommerce among billions of users every day, and the exponential growth of data that has brought, we all know how valuable Google’s role in collecting, organizing, and filtering all that information has become in our daily lives”.
