A Tech Stock to Consider Amidst Earnings Season

As earnings season unfolds, investors are closely monitoring updates about company performances. Many tech giants from the "Magnificent Seven" group are set to release their financial results.

These companies are recognized for their strong presence in their respective markets and are often at the forefront of many investors' interests. However, their stock prices frequently reflect high valuations, making them less accessible during regular market conditions.

Fortunately, current market fluctuations present an opportunity. There is one stock in the Magnificent Seven that you should consider purchasing during this dip, and it is not Nvidia.

The Spotlight on Alphabet

With a market capitalization of $2.3 trillion, Alphabet (GOOGL) continually captures attention. On February 4, when the company reported its fourth-quarter financial results for 2024, its shares fell by 7%. This drop suggested that news from the earnings report might have disappointed analysts.

Alphabet reported a revenue increase of 12% year-over-year, reaching $96.5 billion for the fourth quarter. While this growth is impressive, it fell short of expectations by approximately $90 million, which likely contributed to the stock's decline. Additionally, a weaker performance in the significant Google Cloud segment may have fueled investor concerns.

However, Alphabet did surpass earnings per share (EPS) forecasts. In Q4, diluted EPS rose 31% to $2.15, demonstrating the company's ability to generate profits at a faster pace than revenue over the past decade.

One potential source of disappointment for the market was Alphabet's announcement of planned capital expenditures of $75 billion for 2025, significantly higher than the expected $59 billion. The company is clearly prioritizing increased investment in technology infrastructure, with emphasis on areas like servers and data centers.

Seeing the Bigger Picture

It can be easy for investors to focus too much on quarterly results and make hasty decisions. Successful investors often step back to examine long-term prospects. Looking at Alphabet as a whole reveals a robust business model.

Even at its substantial size, Alphabet still has significant avenues for growth. The global digital advertising market is projected to double, aiming for a revenue target of $1.2 trillion by 2030. With its established market share, Alphabet is well-positioned to capitalize on this expansion, largely due to the popularity of its online platforms.

Financially, Alphabet is in strong standing. The company generated an impressive $99 billion in annualized free cash flow during Q4 after substantial capital investments. This financial health has enabled the company to support $62.2 billion in share buybacks and $7.4 billion in dividends over the past year.

Moreover, Alphabet carries minimal financial risk. The company's balance sheet demonstrates its strength, with cash and market securities amounting to $84.8 billion exceeding its total long-term debt.

Seize the Opportunity

It is not often that investors can acquire shares of leading companies at attractive prices, but this is the current situation with Alphabet.

The stock is currently trading 10% below its peak, with a forward price-to-earnings ratio of 20.6—lower than the general market average represented by the S&P 500. This undervaluation seems unwarranted given the company's potential.

Analyst projections indicate that Alphabet's EPS is slated to grow at an annual rate of 13.6% over the next three years, making its lower valuation multiple justifiable.

Now is a smart time to consider buying this stock from the Magnificent Seven during this market dip.

The information provided does not constitute financial advice. Please consider consulting with a financial advisor for personalized guidance.

Earnings, Investing, Technology