Alphabet (NASDAQ: GOOG) stock has taken a hit recently. Currently, shares in the big tech company can be picked up for around $125 — more than 10% lower than the level they were trading at in mid-October.
Here, I’m going to discuss why I think investors should consider buying the dip. Let’s dive in.
Big share price fall
Alphabet posted its Q3 earnings last month, and overall, they were solid, to my mind.
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For the quarter, revenue came in at $76.7bn, up 11% year on year, helped by strength in the digital advertising market.
Meanwhile, diluted earnings per share amounted to $1.55 versus $1.06 a year earlier (+46%).
Both revenue and earnings were above analysts’ estimates.
What spooked investors, however, was growth in the company’s cloud computing division.
For Q3, cloud revenues were $8.41bn versus the forecast of $8.64bn.
And cloud growth of 22% was well below last year’s Q3 figure (38%).
Now sure, this slowdown in growth is a little disappointing.
However, I think the share price fall here is overdone. A 10%+ drop due to a miss on the cloud side of the business seems a bit crazy to me.
A lot of growth ahead
Looking ahead, I expect Alphabet to continue generating solid revenue and earnings growth.
Recently, there has been some talk that ChatGPT could kill its search business.
However, I just don’t see it happening.
Ultimately, ChatGPT and Google are two different things.
ChatGPT is great for finding an answer to a question. Or writing a generic blog or email.
However, it’s pretty useless when it comes to a lot of other things.
For example, if I wanted to research and buy a new laptop, it can’t really help me whereas Google can.
Similarly, if I was looking for the best stocks to buy, Google would be far more helpful to me than ChatGPT, because the former would point me in the direction of trusted sites like The Motley Fool.
So, I reckon Alphabet is well placed to continue generating growth on the digital advertising side.
Growth from its YouTube platform should help. Today, YouTube is one of the most dominant entertainment platforms on the planet.
A leader in AI
Of course, artificial intelligence (AI) also presents a massive long-term opportunity for Alphabet.
Recently, the company has been rolling out powerful AI features across apps like Drive, Docs, and Maps.
And shortly, it is about to release Gemini, its next generation AI foundation model designed to compete with ChatGPT-4.
Alphabet also just invested an extra $2bn in AI start-up Anthropic. So, it’s clearly taking AI seriously.
Add in growth from cloud computing and ‘other bets’ like its Waymo self-driving cars, and I think there’s a lot to be excited about here.
And this growth is available for a reasonable price.
Currently, Alphabet’s forward-looking P/E ratio is just 19, using the earnings forecast for 2024.
I see a lot of value at that earnings multiple.
Attractive risk/reward setup
Now, there are risks here, of course.
Competition from Microsoft and other technology companies is obviously a huge risk. If Alphabet doesn’t innovate, it may lose market share in search and cloud.
Government intervention and litigation are two other factors to consider. These could hit profits.
Overall though, I see the risk/reward proposition here as attractive.
I think now is the time to consider buying the stock.
