Billionaire Investors Favor Alphabet Stock Amid Tech Giants' Rally

1 No-Brainer Billionaire-Owned Stock to Buy Right Now | The Motley Fool

Let's not beat around the bush. As individual investors, our goal is to become wealthy one day. For each person, that exact dollar amount is different. It makes sense that as we look at stocks to add to our portfolios, we might try to copy some of the wealthiest investors. Due to reporting requirements, billionaire hedge fund managers' holdings are open for the public to see. There's one "Magnificent Seven" stock that is clearly popular among this elite crowd, as 11 of 16 top hedge-fund firms owned it (as of Dec. 31). Here are four reasons why Alphabet (GOOGL -0.46%) (GOOG -0.40%) is a no-brainer business to buy for your own portfolio. Key reasons the gargantuan internet enterprise should be on your radar are its notable competitive strengths. The first advantage Alphabet has is intangible: data. Thanks to Google Search, which has a 91% global market share, with 130 billion visitors to google.com in June, there might be no other company that collects as much data as Alphabet does. This makes it a clear leader in the digital ad industry. And it helps inform product-development efforts. Alphabet also benefits from powerful network effects. Google Search is a three-sided ecosystem with users, websites, and advertisers all finding tremendous value thanks to its massive scale. Connecting content creators with viewers gives YouTube network effects as well. The market loves a good growth story. Businesses that can rapidly increase their revenue are exciting. But they typically are in poor financial shape. This is not the case here. Very few businesses are in better financial condition than Alphabet. As of June 30, the $13 billion of long-term debt on its balance sheet was more than offset by $101 billion in cash, cash equivalents, and marketable securities. And the company appears to always operate from this position of strength. For one thing, it's extremely profitable. Its second-quarter operating margin came in at a stellar 32%, and it has averaged 27% in the past five years. This helps drive incredible free cash flow, which management uses to repurchase shares and pay dividends. Alphabet will continue to gain from three broad secular trends. I discussed above how it is a leader in digital advertising. As the world continues to be more tech-driven, with more internet users, the virtual real estate to sell and display ads will only expand, benefitting Alphabet. Streaming entertainment is another growth engine, since it attracts households that decide to cut the cord. According to Nielsen, YouTube has commanded the most TV viewing time in the U.S. for the last 17 months. And we can't forget about cloud computing, a market estimated to be worth $2.4 trillion worldwide by 2030. Google Cloud saw its revenue rise 29% year over year in the second quarter, with $1.2 billion in operating income. With a heavy focus on artificial intelligence, this segment will allow Alphabet to be at the forefront of this technology. With its stock soaring 194% in the past five years, the business carries a market cap of over $2 trillion today. But there's still a buying opportunity.

This Is the Cheapest Magnificent Seven Stock. Is It Time to Buy? | The Motley Fool

The "Magnificent Seven" dominated the stock market since the launch of ChatGPT in late 2022, and it's easy to see why. These seven stocks, which include Alphabet (GOOG -0.40%) (GOOGL -0.46%), Microsoft, Apple, Nvidia, Amazon, Meta Platforms, and Tesla, are the largest U.S. tech stocks on the market, and all play various roles in the artificial intelligence (AI) revolution. This elite group of stocks now makes up roughly a third of the value of the S&P 500, but their gains haven't come purely from increased earnings. Valuations have gotten stretched along the way, and of the seven stocks, only two trade at a discount to the S&P 500, which is valued at a price-to-earnings (P/E) ratio of 28.4. Those are Meta Platforms, which currently trades at a P/E of 25.4, and Alphabet with a P/E of 24.5, which is about as cheap as it's been in the last year. Alphabet stock fell after its second-quarter earnings report last week due to slower-than-expected growth in YouTube and concerns about spending on artificial intelligence, and the stock is now down 7% since before its earnings report came out. Should you buy Alphabet on the dip? Let's take a look at whether this Magnificent Seven stock is a bargain or if it's better off avoided. While the Google parent fell on its latest report, the results were generally strong. Revenue rose 14%, or 15% on a constant currency basis, to $84.7 billion -- although, that did represent a modest deceleration from Q1's growth. Profit growth was strong as well, as operating margin rose from 29% to 32%, and earnings per share jumped from $1.44 to $1.89. The search giant is still benefiting from layoffs last year as its headcount was down slightly from a year ago, helping to boost margins. Google Cloud is also emerging as a source of profit after years of losses, posting an operating profit of $1.17 billion in the quarter. The vast majority of its profits still come from digital advertising with search generating nearly 60% of revenue. Investors were displeased with 13% revenue growth from YouTube, below estimates at 16%, but the biggest reason for the sell-off seemed to be the jump in capital expenditures (capex), which were up from $6.9 billion to $13.2 billion as the company races to build out data centers to ramp up its AI capabilities. Management said on the call that it's committed to investing to maintain its technical leadership in AI and the cloud. Fears about overspending in tech come as even Meta Platforms CEO Mark Zuckerberg acknowledged that the industry may be overspending on AI infrastructure. However, Alphabet is so profitable that the company is better off overspending to keep up with the new technology than to risk getting left behind. It's facing new competition, including SearchGPT, the new AI-powered search engine launched by OpenAI just last week. Alphabet's search business remains dominant, but in order to maintain its lead, the company will have to invest in its tech infrastructure to make its large language models and other AI tools competitive with rivals like SearchGPT. In that context, the increased spending makes sense even if investors would rather see that cash be returned to shareholders. It's been close to two years since ChatGPT launched, and Alphabet has acquitted itself well after early concerns that it would get left behind by OpenAI, which is backed by Microsoft. However, the Google parent has defended its internet search dominance and kept up with the emerging technology. The stock has a history of rewarding dip buyers, and the recent sell-off, though modest, seems worth taking advantage of. After all, Alphabet is growing revenue and profits much faster than the S&P 500, yet it's trading at a discount to a broad-market index. The increase in AI infrastructure spending shouldn't dissuade you from buying the AI stock today.