Alphabet stock is above $100 again. I’d still buy!

Over the past year, shares in Google parent Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) have lost a quarter of their value. Lately, though, Alphabet stock has been moving up. From around £91 per share a fortnight ago, the price has now moved up to about £104.

Even at that level, though, I think the company is a bargain for my portfolio. I expect the price will probably rise well above £100 in coming years.

I’ve been buying Alphabet stock

Indeed, that is why I have upped my stake in Alphabet in recent months while the shares have been beaten down. If I had spare money to invest now, I would be happy to add more even at today’s price.

Why am I so bullish about Alphabet? In short, I see the company as being hardwired into the daily lives of hundreds of millions or even billions of people. From its ubiquitous search to mail services, cloud computing to YouTube, Alphabet has established a strong position competitors have struggled to attack.

Not only that, but its ecosystem of products and services consistently enables large profits. One risk facing Alphabet right now is an advertising slowdown hurting profitability. I think there was already evidence of that in the company’s performance last year.

Annual revenue growth had slowed to just 1% by the fourth quarter, while full-year profits came in 21% lower. However, even after that sizeable fall, net income was still a massive £60bn. With its current market capitalisation of £1.3trn, that means Alphabet trades on a price-to-earnings (P/E) ratio of around 22.

If it can return to 2021 earnings level, the prospective P/E ratio is just 18.

Future prospects

But I think Alphabet stock might actually be cheaper than that. I think the business can not only recover to its former level of earnings but pass them, meaning the prospective P/E ratio is actually lower. That may take some years, but as a long-term investor I am not in a hurry.

In Alphabet’s favour are its huge customer base, technological advantage, existing technical infrastructure and strong brands. Demand for the sorts of digital services it provides is huge — and I expect it to grow over time. But if business looks so promising, why is Alphabet stock a quarter below where it was a year ago, even after the recent move upwards?

Some investors are concerned about what AI means for the core Google search market, a key profit driver for Alphabet. Behind that lies a bigger risk. Alphabet competes in a fast-moving tech environment against a range of deep-pocketed rivals that want to eat its lunch.

The rise of TikTok could mean revenues and profitability fall at YouTube, for example. I do see that as a risk – but also an opportunity. Alphabet has spent two decades defeating competition by improving its own offering.

I expect it to continue doing that, hopefully leading to higher not lower future profits.