Is Alphabet The Best Buy In The US Right Now?

27th Sep '23 by Megan Boxall

11 comments 2278 reads

At last week’s webinar on US investing, I ran through the investment credentials of two of the most exciting stocks in the market at the moment.

The first, Nvidia - the semiconductor giant which has a sizeable stake in the AI market and has been one of the top performers in the US in the year to date (at the time of writing shares are up 240%). I compared the company to Taiwan Semiconductor Manufacturing, which also makes semiconductors but has had a far less profitable run on the stock market in recent months. Unlike Nvidia, it doesn’t have its own IP and hasn’t been working on manufacturing chips for data centres - the gateway to the fast-growing artificial intelligence market.

And then there is Garmin - best known these days for its wearable fitness devices which contributed $1.1bn of revenue in 2022, just under a quarter of overall sales. Garmin fitness revenue has risen rapidly in 2023 as the company rolls out more advanced products, but it is the diversity of its end markets which makes me excited about the stock. The company has a strong customer base in the aviation and automobile markets and is well placed to benefit from the evolution of autonomous vehicles.

If you missed the full analysis on the webinar, you can rewatch it here.

How to analyse US stocks

Of course there wasn’t time during the webinar to analyse all of the exciting stocks in the US, but after the session I noticed a question which I had missed: “If you were forced to buy only one US stock, would it be Alphabet?”

It’s an interesting question, Alphabet shares have recovered strongly in the last year, but the company is still facing threats to its position in the digital marketing and search markets - especially given Microsoft’s recent AI developments.

In addition to specific stock-related questions, we also received a few queries about the process for analysis US stocks: what changes do we need to make to our screens, what tools should we use for news and updates, are there any metrics that any differences?

And so in order to answer all the questions, I thought it would be worth walking you through my process for analysing US stocks using Alphabet as a case study.

I should start with a bit of background, I am already pretty familiar with the Alphabet investment…

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yiannos1

27th Sep '23

Yes there is a lot of quality with growth potential in the US.

Lucky dip

Hi Megan

Thank you for answering my question so comprehensively.

I am a biologist and according to my reading, life depends on three elements: oxygen, Water and the Sun.
For years I have compared Alphabet to “Oxygen “. Everyone needs it every day.

Of the other two vital biological elements,

I have found water in “Apple” but still looking for the “Sun”!

BnB

Given the range of options available stateside, there doubtless are better investments than Alphabet. But perhaps only because of undervaluation, temporary difficulties, or idiosyncratic factors. For an investor looking for a PROVEN, fast-growing slice of cloud computing infrastructure, AI leadership, MASSIVE cash generation from a powerful monopoly in search advertising and a dominant video platform, and a range of other bets in areas like driverless cars thrown in for free, where else can you get it for a cash-adjusted p/e of 17x?

My biggest holding*.

*sadly, now cursed by the deadly BnB Stocko endorsement

peterthegreat

Thanks for the article Megan. I have held Alphabet since August 2015 and I remember one perspective I used when assessing the shares then was to estimate the dividend yield if the company gave up its "Moonshots" and returned cash to shareholders instead of accumulating it. I can't remember the figure but it was impressive. Many critics think it would be better if this cash was returned to shareholders and I do not necessarily disagree with this, but I estimated that if "Moonshots" provided a return anywhere near traditional VC returns then it would be worth waiting for. I liked Alphabet's ability to grow and at the same time throw off huge amounts of cash. Alphabet's ROIC has been in the region of 25-30% over the past 5 years (I think it was similar before this) so this cash is not being wasted and the ROIC was the clincher which led me to invest.

I estimated that if "Moonshots" provided a return anywhere near traditional VC returns then it would be worth waiting for

Wasn't Google Cloud, now the company's leading growth driver, originally a "moonshot"?

Reacher

28th Sep '23

Thanks Megan - that’s an interesting article . There are a lot of interesting companies in the U.S. but trying to keep track of news is a challenge

Is there an equivalent to Investegate for US stocks that sends a notification when there’s new announcements for particular stocks?

WDWombat

29th Sep '23

Anyone interested in US investment and specifically GOOG may benefit from listening to Bill Ackman of Pershing interviewed by CNBC and very recently available on youtube. Most interesting WHY and WHEN he bought Alphabet.

bspowar

I’d go for Albemarle right now

simoan

2nd Oct '23

Hi Megan,

I haven't seen the webinar, but I don't understand the reason for comparing TSMC with Nvidia? Although stock market wise they maybe in the same sector, they are fundamentally very different companies and IMHO any comparison is not valid. To state that TSMC does not have any IP is not correct - they have the essential small geometry silicon process IP required to reliably make chips in volume using the latest high speed semiconductor processes... as required by the likes of Nvidia. Nvidia may design their own chips using their IP but do not make the chips. In fact, they use TSMCs IP and know-how to manufacture their chips for them. So it's incorrect to state that TSMC does not benefit in any way from fast growing data centre and AI markets. They benefit from the growth in sales of all semiconductors.

All the best, Si

Buyandverify

6th Oct '23

Yes.

Relephant

Thanks Wombat for the heads up about this interview which I have just watched. I see Bill Ackman indicated he bought more Alphabet at $94. I was thinking similarly to him at the time (about the PR fumble but still likely great AI prospects going forward). Also at that time prices were depressed anyway following the 2022 Bear Market which hit tech stocks very hard - I think NASDAQ was down 35% which temporarily created a number of good buying opportunities in tech - especially for META). At the time GOOGL stock appeared to me to be significantly undervalued and so I also increased my GOOGL holdings by 188% at an effective average price of just under $98 (net of Put Options premiums I was paid). I love the company and use its many great products a lot - Search, Maps, Google Earth, Mail, You Tube

Is Alphabet the best buy in the US right now?

How to analyse US stocks

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Megan Boxall

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