Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) is one of the largest holdings in my Stocks and Shares ISA. Its share price has fallen around 9% over the past month, taking its total 12-month price growth to 28% as I write. After the recent pullback in price, I think the market has more fairly valued the investment. As a result, I’m quite positive on the shares, and I’m considering increasing my stake.
The AI ‘arms race’ continues
Alphabet is part of an ongoing AI infrastructure build-out, along with other big tech players. These include Microsoft, Amazon, and Meta.
This could significantly benefit Alphabet, especially if its AI capabilities enhance its Google Search user growth. However, there’s also a concern that a large return on the investment in data centres by Alphabet is going to take time. Therefore, I need to be prepared for potential share price volatility over the next couple of years.
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Despite the road to its expansion from AI not being linear, I think it will enhance its overall global tech leadership. The result in a decade could be much higher margins through more automation within the company. If it enhances its profitability as I expect, the investment could be in for big long-term price growth.
Alphabet is less volatile than its competitors
One of the reasons this investment is one of my largest is that it’s less volatile than other big tech companies like Amazon and especially Tesla.
However, it still provides very good growth. This is made evident by comparing it to the leading American stock market index, the S&P 500, which it significantly outperforms in valuation growth.
This lower volatility in price compared to big tech peers is supported by its appealing valuation ratios. For example, Alphabet has a forward price-to-earnings ratio of 21.5, while Amazon’s is 38.5, and Tesla’s is 111.5. This means the market is likely to panic less in case of an operational setback at the company.
There are growing recessionary pressures
Alphabet is clearly positioning itself to remain one of the most powerful technology companies in the world. However, with growing federal debt in the US and high inflation and interest rates, there’s a concern that a long-term recession is coming.
That’s why I’m looking at diversifying my portfolio overseas, including in Chinese companies and Indian companies. I expect these two markets to have very high growth over the next decade.
Also, Alphabet does face increasing pressure from Microsoft and OpenAI, which have partnered up with ChatGPT and Azure Cloud. I think Google Search could be in for more competition as big tech rivals scale their AI capabilities. This could significantly affect the growth of Alphabet’s share price.
I like Alphabet for the long term
Analysts believe that the shares could be worth 23% more than they are today within 12 months. That would be a great return for one of the lower-risk big tech companies.
I agree that the stock is worth me buying at the present valuation. In my opinion, due to strong earnings expansion estimated over the next three years of 19% annually on average, there’s a lot more growth to come, despite the risks. Therefore, I’m likely going to buy more Alphabet shares soon.
