Why I Just Bought the Dip on Alphabet Stock

Alphabet (GOOG -0.60%) (GOOGL -0.62%) is one of the leading companies globally, largely due to its ownership of the Google search engine. Millions of people rely on Google to navigate the internet, and the advertisements that accompany their searches contribute significantly to Alphabet's profitability.

Like any other company, Alphabet experiences fluctuations in its stock price. After announcing its fourth-quarter earnings, Alphabet's stock dropped approximately 7%. While many investors viewed this as a sign of trouble, I seized the opportunity to buy more shares. My decision to invest was based on the company's long-term growth prospects rather than its recent earnings report.

Alphabet's Diverse Business Portfolio

Though Google is Alphabet's flagship product, the company oversees a variety of other substantial brands, including YouTube, Android, and Waymo. Each of these divisions holds immense potential for growth.

YouTube, for instance, is the most popular streaming service in the United States. It boasts millions of content creators who cater to diverse audiences. The platform's format of short videos appeals particularly to younger viewers. In the latest quarter, YouTube's ad revenue surged by 14% year over year, reaching $10.5 billion. For comparison, Netflix reported $10.3 billion in revenue for the same period.

Waymo, Alphabet's autonomous vehicle division, is another exciting area. Waymo currently operates self-driving taxis in cities like Phoenix, San Francisco, and Los Angeles, with plans to expand to Austin, Atlanta, and Miami. An international launch in Tokyo is also on the horizon. Although this division is not yet profitable, the long-term potential in the autonomous vehicle market is immense.

In my viewpoint, Google Cloud is one of Alphabet's most promising non-search segments. This division supports a variety of AI applications worldwide and saw its revenue grow by 30% year over year, reaching $12 billion. Google Cloud now contributes 12% to Alphabet's total revenue.

The diverse nature of Alphabet's business, which extends beyond its mainstay Google search, presents numerous avenues for growth. The current dip in stock price offers a chance to invest in a robust company at a favorable valuation.

Affordability of Alphabet's Stock

Following the earnings announcement, Alphabet's stock now trades at around 24 times its trailing earnings and 21.4 times its expected forward earnings. Given today's market, these multiples are relatively cheap.

For reference, the S&P 500 index trades at approximately 25.5 times trailing earnings and 22.3 times forward earnings. When compared to the tech-heavy Nasdaq 100, which trades at 33.4 times trailing and 27.2 times forward earnings, Alphabet appears quite affordable.

This valuation indicates that Alphabet's stock is priced below the averages for both indices, despite it being a superior business. While immediate market reactions may lead to short-term volatility in the stock price, Alphabet's long-term prospects remain bright. This is why I consider the current prices a smart buying opportunity.

Given Alphabet's strengths in various high-growth sectors, including AI, autonomous vehicles, social media, and cloud computing, it is poised for substantial long-term gains.

Alphabet, Investing, Growth