We came across a long thesis on Alphabet Inc (NASDAQ:GOOGL) on ValueInvestorsClub by natey1015. In this article we will summarize the bulls’ thesis on GOOGL. The company’s shares were trading at $157.46 when this thesis was published, vs. closing price of $189.43 on Jan 2nd.
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Alphabet Inc (NASDAQ:GOOGL) is the holding company that wholly owns the internet giant Google. The company derives slightly less than 90% of its revenue from advertising sales on the Google platform. Alongside online ads, the company generates subscription services from YouTube, platforms like PlayStore, and devices such as Chromebooks, Pixel smartphones, and others.
The bull thesis relies on the premise that GOOGL has historically been chronically undervalued, despite achieving higher growth than many Big Tech names. The author argues that markets have consistently discounted the company due to perceived cyclicality and competitive threats, including the transition from desktop to mobile, competition from Apple’s ecosystem, and pressures from Amazon’s Alexa voice search – threats that ultimately did not materialize. Additionally, the market has underestimated the total addressable market (TAM) of GOOGL, wrongly assuming that online advertising had a ceiling. In reality, GOOGL created incremental TAM for itself by redefining online advertising.
The author views the company as a bet on societal productivity improvements, emphasizing its tremendous optionality across scalable opportunities such as Waymo, AI/Gemini, and other products. Furthermore, the author believes the threats currently leading to GOOGL’s market discount are unlikely to materialize. The most notable concern is that AI might cannibalize internet search market share; however, the author contends that AI capabilities are more likely to complement, rather than replace, traditional search. Furthermore, GOOGL has made tremendous progress in AI through its own Gemini product.
Although the author does not provide a precise stock price target for Alphabet Inc (NASDAQ:GOOGL), he highlights the implied market valuation of the Google Search business. The business is valued at only 10x FY2025 after-tax earnings, while its closest peer, Meta’s social media business, trades at more than twice that multiple. Consequently, the author concludes that GOOGL’s chronic undervaluation represents an opportunity to invest in a high-quality compounder at an attractive price, with significant optionality that could yield substantial returns.
While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
