I’d like to share my perspective on Alphabet Inc.’s stock performance. Alphabet, the parent company of Google, is a familiar name in the tech world, but its stock valuation has been a topic of discussion lately. Currently, I’m rating the stock as a hold at $131.83. Let’s dive into the reasons behind this assessment.

Market Sentiment and Valuation

Alphabet’s stock is trading at a lower valuation compared to its FAANG counterparts. In simpler terms, this suggests that the market isn’t as confident about Alphabet’s future prospects as it is about other leading tech companies. It’s a bit like a popularity contest, with Alphabet not quite securing the top spot. This situation poses an interesting contrast between short-term performance and long-term potential.

CEOs, like Sundar Pichai, play a pivotal role as chief communicators. Their ability to articulate strategy and results can significantly influence Wall Street’s perception and, consequently, stock prices. But remember, short-term popularity doesn’t always translate to long-term success. In Alphabet’s case, it seems like the company is lagging behind in the PR game, despite Pichai’s substantial compensation of nearly $226 million last year.

The Cloud Catalyst

One potential game-changer for Alphabet is its cloud business. While predicting the future is never foolproof, one thing seems certain: organizations will increasingly migrate to the cloud. Google Cloud, a subsidiary of Alphabet, has shown impressive growth with revenues reaching $8.03 billion in the most recent quarter, up by 28% year over year. What’s noteworthy is that Google Cloud is turning a profit, a rare feat in the tech industry where many companies are still struggling in this area.

The cloud market is led by Amazon Web Services (AWS) with a 32% market share, followed by Microsoft Azure with 22%, and Google Cloud with 11%. Despite lagging behind, Google Cloud’s profitability and growth indicate a promising future. This could potentially be a key factor in driving Alphabet’s stock price higher.

Entertainment Ventures: YouTube TV and NFL Sunday Ticket

Alphabet’s foray into the entertainment world with YouTube TV is also worth considering. With 6.6 million subscribers as of August 2023, YouTube TV is gaining traction. It currently ranks as the fifth-largest TV provider, and its competitive pricing has put pressure on traditional cable providers, some of which are witnessing a decline in subscribers.

Alphabet has made a significant investment of $2 billion annually for seven years to broadcast NFL games. This move is expected to attract new subscribers, possibly even luring some away from traditional providers. While the immediate payoff may not be apparent, this could be a long-term strategy to capture a share of the growing streaming market. In an era where advertising dollars increasingly flow towards higher ROI platforms, this investment could be seen as a calculated risk.

In Conclusion

Alphabet’s dominance in search, with a commanding ~90% market share, remains a substantial asset. However, diversification is crucial, as the company ventures into cloud services and entertainment. The cloud’s growth and profitability are encouraging signs of Alphabet’s seriousness in this space, and the NFL deal could bring in millions of new YouTube TV subscribers.