Alphabet could be the best bet among the Magnificent Seven stocks that led the market higher in 2023.
It's expected to grow as fast as Microsoft, with earnings forecast to be up 15% in 2024, three times as quickly as Apple's 5% growth. Yet its stock trades for just 20 times earnings, a discount to both Microsoft and Apple's 30 times, despite gaining 50% this year.
Investors have been worried about slowing growth in Alphabet's cloud computing division, the threat that artificial intelligence poses to its search business, and antitrust scrutiny. Those issues look manageable.
The "disappointing" cloud business still grew third-quarter revenue at a 22% clip, and while the company was caught off guard by Microsoft's AI search initiative, it quickly regrouped. As for antitrust issues, they may not go anywhere, and Alphabet might be worth more broken up, anyway.
Alphabet has over $100 billion of net cash as of Sept. 30, and the company is showing some discipline on costs. That leaves plenty of money to buy back stock, and perhaps even start paying a dividend. Alphabet could easily support a 1.5% payout, in line with the market.
"We continue to view Alphabet as one of the true leading tech franchises at a fundamental inflection point," writes Evercore ISI analyst Mark Mahaney.
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