Investing in Alphabet: A Smart Move During Nasdaq's Correction

Just a few months ago, the Nasdaq Composite reached an all-time high, maintaining a strong performance that had been ongoing for two years. However, since that peak, the index has dropped over 13%, including a significant 9% decline this year, indicating a correction phase (as of March 11).

This decline is particularly pronounced among large tech stocks, which have heavily influenced the Nasdaq index. Out of the well-known "Magnificent Seven" tech stocks, only Meta Platforms is showing positive returns this year.

Many tech companies focused on artificial intelligence (AI) have seen both rapid growth and significant declines in recent months, driven by market corrections. However, one AI stock stands out as a worthy investment during this downturn: Alphabet (GOOG 1.75%) (GOOGL 1.68%). If you're looking to invest $1,000, now might be an opportune time to consider acquiring shares of Alphabet for long-term growth.

Alphabet's Leadership in AI

In the world of AI innovation, Alphabet stands out as a key player. Over recent years, the company has dedicated extensive resources to AI projects, notably through its AI research firm, DeepMind. This organization is focused on developing sophisticated AI models, machine learning algorithms, and deep reinforcement learning systems.

While DeepMind doesn’t attract as much attention as other Alphabet divisions, its contributions are vital to Alphabet’s advancements in AI, including the notable AI model, Gemini. Being one of the initial major players in this field, along with having its own research and development, gives Alphabet a distinct advantage over other tech firms that are still establishing their AI frameworks or depending on models created by outside companies like OpenAI.

In its bid to expand AI capabilities, Alphabet allocated $52 billion toward capital expenditures in 2024 and is planning to increase this to approximately $75 billion in the coming year. While increased spending does not automatically guarantee success, it does reflect the company's commitment to investing heavily in its most promising growth sector.

If Alphabet follows through with its $75 billion expenditure plan, it would signify a remarkable 130% increase from the previous year.

The Growth of Google Cloud

Cloud computing is another rapidly expanding sector for major tech players like Alphabet. Although its Google Cloud platform is currently third in market share, trailing Amazon Web Services (AWS) and Microsoft Azure, Google Cloud's share has doubled over the last seven years, reaching 12%. It remains significantly ahead of the fourth-largest provider, Alibaba Cloud.

In the fourth quarter (Q4), Google Cloud reported revenues of $12 billion, reflecting a 30% increase year-over-year. Alphabet's CEO, Sundar Pichai, indicated that the demand for the AI-enhanced Google Cloud platform has been robust, and its financial performance supports this growth.

While Google advertising is expected to continue being the primary revenue source for Alphabet, Google Cloud is emerging as a more significant contributor. In Q4, Google Cloud represented 12% of Alphabet's total revenue of $96.5 billion, compared to just 5% five years ago.

Alphabet's Stock is Becoming More Affordable

A few months back, Alphabet's stock was trading at nearly 34 times its earnings. While this valuation was relatively lower than some other Magnificent Seven stocks, it still wasn't considered cheap.

Following recent stock price declines, Alphabet is now trading at just over 20 times its earnings, bringing it closer to bargain territory compared to its average valuation.

Investing in stocks, particularly high-growth tech stocks like Alphabet, comes with its risks. However, purchasing Alphabet shares at the current price presents significantly less risk compared to a couple of months ago. While it’s uncertain if prices will continue to fall, those interested in investing in Alphabet might find this to be a strategic moment to buy shares. For those worried about further market declines, considering a dollar-cost averaging strategy could help mitigate potential volatility in their investments.

investment, AI, stocks