No. of Recommendations: 12
With the recent price fall, Alphabet now makes a very large position in my portfolio, trailing only Berkshire (which is more than a half of my equity holdings). It was on my wish list for quite a while, and I took this year's price action as my opportunity.
ChatGPT is the news du jour, and I appreciate the discussion. I am wondering on how others view the firms prospects more generally.
My thesis is very simple --
(1) while somewhat cyclical in nature, Alphabet's key revenue and profit streams (advertising via Search, YouTube) will very likely not be supplanted within the next 5-10 years, even with regulatory interventions:
(2) while earnings have come back down to earth from the 2020-21 Covid-induced blip, and there has been additional spend for every dollar earned, Alphabet is earning money at a healthy rate comparative to price, given the very large haircut it received this year(e.g., P/E is currently sub 20):
(3) ChatGPT aside, there are still reasonable expectations of growth (e.g., based on analyst 2024 estimates, Alphabet would be trading at a hair over 15 p/e in 2024 if the price stays flat)*:
(4) The firm has taken a more mature approach to capital allocation as it has grown, and I see no Metaverse or equivalent boondoggle on the horizon:
(5) The firm still has a fortress balance sheet, with 2022 Q3 cash and marketable securities at $116 billion (effectively 10% of its current market cap): and
(6) While Search is still the big money maker, the firm has been successful in a number of diverse areas, and isn't stagnating (e.g., see Cloud growth).
*While I don't put too much weight on these projections, NASDAQ's consensus estimates for 2023 and 2024 are $5.08 and $5.85, respectively.
Given the foregoing, I don't see a lot of downside risk from here, and quite a bit of possible upside. Wondering how others see things.
