After the 30% decline in early 2022 by the Big Tech Invesco NASDAQ 100 ETF (QQQ) equities, there are numerous potential buy candidates for long-term investors. I mentioned the logic of buying a collection of the strongest technology businesses in the world through a purchase of the QQQ product last week here. And, individual names like Meta Platforms/Facebook (FB) here and Netflix (NFLX) here today have their best risk/reward setups in many years, from a historical and mathematical perspective, following sharp panic selloffs.
Yet, one company remains the clear winner on a risk-adjusted basis in Big Tech. For a variety of reasons, I believe the smartest single Big Tech equity to own/buy in May 2022 is Alphabet/Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and have expressed this view in articles since early 2020. The stickiness of its internet-delivered products with consumers and businesses is one reason. Another is a valuation near 10-year lows currently. Plenty of cash holdings and super-high profit margins are others. Lastly, in my view Alphabet's collection of businesses is the best situated of the mega caps to survive a breakup mandated by the federal government, if that ever comes to pass. So, in combination I believe this stock has the best odds of continued outperformance of the S&P 500 index over the next 3-5 years, out of the universe of market capitalization choices over $100 billion in technology.
Operating Business Breakdown
Google controls a 90% share of global search engine use, making this service one of the most desired ways for businesses to target advertising to online consumers. Search and related services were responsible for 58% of company sales and a majority of operating profits in the first three months of 2022.YouTube is the leading video upload service for consumers/businesses. It is by far the most profitable business model in streaming, where Alphabet pays next to nothing to create content, serving only as the hosting enterprise for millions of vlogs, entertainment shows, music videos, tutorials and more.Google Cloud and Workspace hosting is running at a 9% market share worldwide, representing the third largest cloud network, behind Amazon (AMZN) and Microsoft (MSFT).Other units include Pixel smartphone manufacturing and sales, Google Fiber high-speed internet access, Waymo research and development on self-driving cars, Google Pay and Wallet offerings for banking and transactions, plus leading Maps, Ads, Gmail, Android, Drive, Docs, Meet, Calendar and Chrome software for computer and smartphone use.
Revenues for the whole group of companies grew a terrific +24% in the March Q1 period just ended vs. a year ago, far above the CPI price level gain of +8% YoY. Honestly, if the economy grows and/or inflation rates stays high, Alphabet cannot help but expand sales by 10-15% annually just from demographic increases in internet usage worldwide.
Google Q1 revenue
March 2022 Q1 - Earnings Release
Low Valuation Vs. High Growth Rate
The strongest argument in the buy proposition for Alphabet is its present valuation. Business results are available for investment at a lower valuation than most Big Tech names, while its growth rate is in the middle to high end vs. peers. To me, this dichotomy creates a bargain valuation, as long as growth continues at a well above-average pace.
Below is a graph of Wall Street analyst projected EPS gains between 2020 and 2024 for a list of Big Tech peers for size or direct competitors in one of its business lines, mostly in the software, streaming and internet selling spaces. I am including Meta, Netflix, NVIDIA (NVDA), Microsoft, Amazon, Apple (AAPL), Tesla (TSLA), Intuit (INTU), PayPal (PYPL), Adobe (ADBE), and Salesforce (CRM) for comparison.
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