The biggest position in my Stocks and Shares ISA right now is Google parent Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). So the outlook for Alphabet stock is certainly something of interest to me.
I have been buying shares in the tech giant because I feel bullish about its outlook.
But I also need to face facts. Alphabet stock is 15% lower than it was a year ago. The business environment for Alphabet has become more challenging.
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With quarterly results due out this Tuesday, a lot of eyes will be on performance. As a long-term investor, though, I am more interested in what might happen over the coming decade.
From its current price of close to $100, I can see possible pathways in coming years both to a significant drop in value and also a big rise. I will consider both in turn.
The bear case: Alphabet stock at $50
The bear case rests on question marks about the relevance of Alphabet in a quickly evolving tech environment.
That is true for assets beyond Google. The popularity of long-form videos, central to Alphabet’s YouTube platform, is under threat from competitors such as TikTok. Much shorter videos mean far fewer opportunities for advertising sales. Advertising revenue is central to Alphabet’s business model.
But the biggest question is around Google, Alphabet’s cash cow.
If Google search revenues and profits fall far enough, I could see Alphabet stock hitting $50 again. It was at that price within the last five years, before surging ad sales helped lift investor sentiment. But AI could threaten not only Google but the search industry overall. AI could remove the need for search altogether by proactively presenting users with information they need without them having to search for it.
AI is the elephant in the room, but it also highlights an ongoing challenge: the centrality of Google search to profits at Alphabet. That is a risk to Alphabet stock, as it is hard for a company to stay dominant in an area for decades without attracting more competition or regulatory scrutiny.
The bull case: Alphabet stock at $200
Even after its recent poor performance, though, Alphabet stock has doubled in under five years.
Can it do the same again, which would push it to over $200?
AI is an opportunity as well as a threat to Google. If it develops the right technology and applications, I think AI could actually end up meaning Alphabet’s huge user base spends even more time in the Google ecosystem.
That could be good for ad revenues. It may also allow the company to ramp up other sources of income, such as services, subscriptions, and even hardware.
Google’s massive user base and reach is a key asset and its brand gives it a headstart in evolving tech spaces. With earnings of $60bn last year, Alphabet is generating huge amounts of cash. Such deep pockets give it an advantage over most rivals in turning new technological development to its advantage.
I’m bullish
I see merit in both sides of this debate.
But I think Alphabet stock could well hit $200 at some point in the coming decade. I therefore plan to keep holding my shares for the long run.
