Nasdaq Sell-Off: Buy This Unstoppable Stock at a Discount
3 hours ago
After remarkable performances in 2023 and 2024, the Nasdaq Composite seems to have hit a roadblock in 2025. The technology-heavy index closed at 17,436.10 on March 11, or 13.6% below its all-time high of 20,173.89 on Dec. 16 last year.
Investors are concerned about the economic uncertainty and tariff wars, which are hurting consumer confidence. Against this backdrop, several analysts are projecting even more selling for Nasdaq in the coming days.
However, all is not doom and gloom for the stock market. The current valuation reset can be an attractive entry point for investors to buy stakes in high-quality stocks. One such company is Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL). Here's why it's a compelling pick now.
Alphabet is currently battling several challenges. Prominent among them is the increasing competition from artificial intelligence (AI) chatbots and virtual agents for the company's Google search business. Gartner estimates that traditional search engine volumes will drop 25% by 2026.
Alphabet also faces significant regulatory headwinds. The company lost a U.S. Department of Justice (DOJ) antitrust lawsuit in August 2024, which raised concerns about potential divestitures of its businesses. On March 7, the DOJ dropped a bid to force Alphabet to sell its stakes in AI companies to increase competition in the online search market.
In such a volatile environment, some investors are also concerned about the company's $75 billion in planned capital expenditures for 2025, which can lead to higher depreciation expenses and lower margins. Investors are also worried about the potential return on investment of the company's AI initiatives.
Despite numerous challenges, Alphabet is well-positioned to take advantage of powerful tailwinds. It is aggressively integrating advanced AI capabilities across its product suite, particularly in Search, to improve user engagement, satisfaction, and monetization.
The AI Overviews feature in Search has helped drive up the number of commercial queries, which translates to higher returns on investment for advertisers. And AI Overviews help improve customer targeting and the complexity of search query trends, which also benefits advertisers.
Google Cloud is also emerging as a significant catalyst, with revenue soaring 30% year over year to $12 billion in the fourth quarter. The company saw the number of first-time commitments more than double year over year in 2024.
At the close of 2024, Google Cloud held a 12% share of the global cloud infrastructure market, an increase of 1 percentage point year over year. According to Synergy Research Group estimates, Google Cloud is the only cloud infrastructure player among the top three that gained market share in 2024.
Google Cloud's current capacity is falling short of demand. With Alphabet committed to investing heavily to bring new capacity online in 2025, the company stands to benefit from top-line growth and margin expansion in the coming years.
Lastly, other segments of its business are also showing impressive progress. YouTube is the leading streaming player in the U.S. based on viewing time. Its advertising revenue was up 14% year over year to $10.5 billion in the fourth quarter.
Waymo's autonomous driving technology is also seeing robust adoption and has safely facilitated more than 4 million passenger trips. Its latest funding round has valued the business at over $45 billion, as per Bloomberg News.
In December 2024, Alphabet announced that it had developed the latest quantum-computing chip called Willow, which can reduce errors exponentially while scaling up using more qubits. With Willow, Alphabet expects to resolve a major challenge in quantum error correction. Although still far from the commercialization stage, Willow is expected to help Alphabet build a quantum computer with practical applications.
Alphabet shares are trading at 5.9 times sales, lower than their historical price-to-sales ratio of 6.04. The stock is also trading at 21.1 times trailing-12-month earnings, lower than its historical five-year average price-to-earnings ratio of 24.6. Despite a core digital advertising business bringing stable cash flows, and cloud and AI businesses driving future growth, the stock is trading at very reasonable valuations.
Historically, Alphabet has proved to be a highly resilient stock. The company's shares crashed by some 30% from their all-time intraday high of $1,530.73 on Feb. 19, 2020, to $1,037.00 on March 18, 2020, in a broad market sell-off triggered by the COVID-19 pandemic. However, the stock rebounded and reached its pre-pandemic highs by July 2020. It reached a new all-time high above $1,700 in August 2020, buoyed by strong earnings performance.
Alphabet stock tanked nearly 39% in 2022 as difficult macroeconomic conditions affected overall advertising spending. But, once again, the stock recovered and rallied almost 58% in 2023.
Hence, a majority of the time, Alphabet stock rallies back after witnessing some volatility. Considering this trend along with Alphabet's strong fundamentals and reasonable valuation, the stock seems an attractive pick now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
