I should start this article by clarifying that I have no plans to rebalance my stock market portfolio into a single stock. That’s because I believe there are huge merits to diversification, and I don’t have the risk appetite to pile my life savings into just one company.
That said, if I could only invest in a solitary share, what would it be?
It’s an interesting question to ponder, as it helps me to reappraise my current investment allocations and think about which companies I want significant exposure to.
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After much deliberation, the stock I settled on is Google’s parent company, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Here’s why.
Market dominance
Everyone’s heard of Google. In all likelihood, you probably arrived at this article via a Google search. Analysts estimate that Alphabet claims a massive global search engine market share of 93%.
This is a highly profitable business to be in. The digital advertising market is expected to grow over the coming years and Alphabet is in pole position to benefit from this tailwind.
Admittedly, the current macroeconomic climate has proved challenging for the company. Alphabet’s Q4 search revenues declined 1.6% to $42.6bn as advertisers trimmed expenditure. Nonetheless, if any stock has the resilience to weather an economic storm, in my view, it’s Alphabet.
The company has an enormous $114bn in liquidity and still managed to deliver $60bn in free cash flow during 2022, which wasn’t an easy year.
Challenges
Market dominance comes with risks. Antitrust lawsuits are an obvious one, and Alphabet has had to contend with plenty of those over the years.
In addition, there’s growing speculation that Microsoft‘s multi-billion dollar investment in AI chatbot ChatGPT could disrupt Alphabet’s search engine market share. Errors made in a public demonstration by Alphabet’s rival technology, Bard, suggest Microsoft could be winning the AI arms race.
However, I’m sceptical. No doubt intensive work is underway at Alphabet to improve its offering in this evolving space and questions have been raised about ChatGPT’s reliability too.
In my view, Microsoft’s still a long way away from mounting a serious challenge in the search engine market. After all, Bing currently only has a 3% share.
Plus, what’s the most searched word on Bing? You guessed it — it’s ‘Google’.
Beyond search engines
There are multiple strings to Alphabet’s bow.
The tech titan owns YouTube, which shows particular promise in the music streaming arena. The platform surpassed 80m paying subscribers in September 2022, up from 50m the year before.
There’s also Google Cloud, which delivered 32% year-on-year revenue growth in Q4 to $7.3bn. This division helped lift the company’s consolidated revenue growth into positive territory with a 1% increase to $76bn.
Finally, Alphabet continues to make a foray into the hardware market. Google’s Pixel devices enjoyed a positive 2022. The Pixel 6a, 7, and 7 Pro are the company’s best-selling generation of phones ever.
Why I’d buy Alphabet stock
There’s a reason Alphabet is the fourth-largest company in the world with a market cap of $1.18trn. It’s a highly innovative, cash-generative behemoth that has become synonymous with the internet.
Although I wouldn’t put 100% of my money into one stock, if it came to it, I’d pick Alphabet.
