Alphabet (NASDAQ: GOOG) stock has had a major pullback recently. Not so long ago, the stock was trading near $150 ($3,000 before the recent stock split). Today, however, it can be snapped up for less than $90.
After this pullback, I’m seeing value on the table here. So, I’ve taken the opportunity to buy more Alphabet stock for my portfolio. Here’s why I’m bullish on the Big Tech company.
Why I’ve bought more Alphabet stock
Alphabet’s Q3 results, posted last month, showed that the company’s growth has slowed recently. For the quarter, revenue came in at $69.1bn, up just 6% year on year (11% growth at constant currency).
I’m not surprised by this low level of growth. Alphabet generates the bulk of its revenues from advertising on its Google and YouTube platforms. And due to uncertainty in the global economy, it’s a weak environment for advertising right now.
I don’t expect this weak environment to last forever though. At some stage in the not-too-distant future, economic conditions should improve and advertising spending should pick up. When it does, Alphabet’s top line (and share price) should get a boost.
Cloud computing growth
Alphabet isn’t just a digital advertising story, however. Another growth driver is cloud computing. Alphabet is currently the third-largest cloud provider behind Amazon and Microsoft. And in Q3, year-on-year revenue growth here was 38%.
Looking ahead, the cloud computing industry is projected to grow at a strong rate over the next decade. So, I’m expecting Alphabet’s revenues in this segment to keep climbing.
On top of this, there’s considerable potential in its ‘Other Bets’ division. This division includes its self-driving car subsidiary, Waymo, which is a leader in the autonomous driving space.
It’s worth noting that earlier this year, Waymo was granted an autonomous driving taxi service licence by the California Public Utilities Commission (CPUC). This allows it to offer a self-driving taxi service in some areas of California under certain conditions.
Combine digital advertising, cloud, self-driving cars, and all the other exciting things Alphabet is involved in (artificial intelligence, biotechnology, smart home technology, health data, etc.), and there’s a lot of growth potential here in the long run.
The rotation out of Big Tech
Of course, there are a few risks to consider with Alphabet stock.
The main risk that concerns me is that we’re currently seeing a massive rotation out of the technology sector (especially Big Tech) and into other areas of the market such as energy. These shifts tend to take time to play out. So, Alphabet’s share price could remain under pressure for a while.
Another risk is competition from TikTok. YouTube has its ‘Shorts’ to rival TikTok, but these videos don’t generate as much revenue as traditional YouTube videos.
I’m a buyer of Alphabet stock here
With the stock more than 40% off its highs, and currently trading on a forward-looking price-to-earnings (P/E) ratio of under 20, however, I like the long-term risk/reward proposition. At current levels, I’m a buyer of the stock.
Ed Sheldon has positions in Alphabet (C shares), Amazon, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022