2022 has been a tough year for the stock market. Concerns stemming from economic challenges caused apparent selling activity, sending stocks lower. Heavy technology Nasdaq Composite It is down 33% in 2022 — only the sixth time in more than 50 years that it has fallen that level or more.
In the midst of a sell-off in 2022, the alphabet (NASDAQ:GOG) (Nasdaq: Google) It completed a 20-for-1 stock split. Analyzing a stock split can be interesting because it may shed some light on which companies saw higher trading volumes and saw their stock prices rise. While stock splits do not inherently increase a company’s value, seasoned investors know that after a stock split, a company’s shares typically tend to see an increase in demand – given their expected lower price – which ultimately drives up the stock price.
Since the split in July 2022, Alphabet stock has returned about 28% — far less than its Big Tech peers like MicrosoftApple, Amazon, Meta, And Nvidia. I think a lot of this has to do with AI, and which companies are seen as emerging leaders.
One could argue that Microsoft, Nvidia, and even… Tesla It gets the most attention when it comes to artificial intelligence. Microsoft kicked off the AI race after a $10 billion investment in OpenAI, the developer behind ChatGPT. Meanwhile, demand is growing for Nvidia’s semiconductor chips, which are used to train generative AI models, and Tesla appears to be on the verge of commercially available self-driving.
Given this level of competition, AI investors may have missed out on Alphabet’s progress. In fact, billionaire hedge fund manager Bill Ackman believes Alphabet’s AI business is so largely overlooked that investors can buy it “for free.”
I agree with Ackman’s position and think Alphabet stock looks like a bargain. Let’s dive into why 2024 is a great time to buy some stock in an underappreciated AI leader.
A trip down memory lane
Since its founding in 1971, the Nasdaq Composite has generated negative returns only 14 times. The only periods in which the index witnessed consecutive years of declining returns were in 1973 and 1974, as well as in 2000, 2001 and 2002.
These trends underscore the resilience of the Nasdaq, given that it tends to bounce back after a down year. However, while inflation is starting to cool and many economists believe the Federal Reserve is done raising interest rates, I wouldn’t be surprised if the turbulent market conditions from 2022 are still lingering on your mind — causing some hesitation when it comes to tech stocks in particular. The special.
Over the past two decades, the Nasdaq has fallen by 30% or more on only three occasions — 2002, 2008, and 2022. Interestingly, following the market crashes of 2002 and 2008, the NASDAQ continued to rise for consecutive years after that. In the period from 2002 to 2007, the Nasdaq index achieved returns at a rate of 15.9% annually. From 2009 to 2010, the index rose by 30%.
To be clear, the past performance of the Nasdaq does not guarantee future results. However, given the growing demand for AI, I believe 2024 could be another strong year for tech stocks after the Nasdaq returned 43% last year.
Alphabet’s gains in artificial intelligence may be just the beginning
Over the past two years, the broader economy has struggled with rising inflation and borrowing costs, forcing companies of all sizes to rein in spending and operate with slimmer budgets. These macroeconomic factors have affected many different sectors, and the technology landscape has been particularly affected as demand for expensive software applications has begun to decline.
Regarding Alphabet and its massive advertising business, marketers have become increasingly selective in how they allocate campaign funds. It should come as no surprise that this has put Alphabet at the center of an intense battle between rival social media platforms TikTok, Facebook and Instagram.
However, Alphabet has invested a significant amount of capital in new products and services – which are already helping the company return to growth. AI capabilities are integrated across its entire ecosystem, including areas like Google Cloud, Google Search, video sharing site YouTube, and productivity tools within Google Workspace.
Additionally, the launch of a ChatGPT competitor called Gemini may be the push the company needs to be considered a leader among AI developers. However, despite all these exciting gains, Alphabet shares aren’t commanding a premium commensurate with their Big Tech peers — which makes the stock a tempting buy at its current valuation.
Alphabet stocks look dirt cheap
The chart above shows the forward price-to-earnings (P/E) multiples for Magnificent Seven stock. At a forward PE of 20.3, Alphabet stock is actually tied for last place with the Meta. Moreover, this is completely consistent with Standard & Poor’s 500Forward P/E of 20.7 – perhaps indicating that investors do not expect Alphabet to outperform broader markets.
To me, Alphabet stock is absurdly undervalued. Despite slowing inflation and the possibility of the Fed cutting interest rates this year, I suspect many are concerned about the company’s growth prospects. More specifically, the company’s rebound in advertising in 2023 is encouraging — but keep in mind that revenue increased just 7% year-over-year through the first nine months of 2023.
I think this is a short-sighted concern, especially since 2024 contains tailwinds that could boost digital advertising platforms. Furthermore, Alphabet is making notable strides in cloud computing – a market largely dominated by Amazon and Microsoft at the moment.
There’s no doubt that Alphabet has a lot to prove. But keep in mind that the stock has returned more than 5,300% to investors since its initial public offering in 2004. Even an investment of just $1,000 20 years ago might now be worth about $54,000.
To me, this underscores Alphabet’s strong performance over the long term. While the company will likely continue to fend off an increasing number of competitors, I believe management is taking impressive actions to diversify Alphabet’s products and services and build the foundation for long-term sustainable growth. With stocks trading at such a bargain, now seems like a great opportunity to collect and hold on to shares.
Should you invest $1,000 in Alphabet now?
Before you buy shares in Alphabet, consider the following:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks Let investors buy it now… and Alphabet wasn’t one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Stock advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. the Stock advisor The service has more than tripled the return of the S&P 500 since 2002*.
See 10 stocks
*Stock Advisor returns as of December 18, 2023
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
History says the Nasdaq will crush the Nasdaq in 2024. Here are 1 artificial intelligence (AI) stocks you can buy and hold forever. Originally published by The Motley Fool