Google Stock Or Philip Morris?
Question: Why would you pay 37 times earnings for Philip Morris stock when you can buy Google stock for a much cheaper valuation of 19 times earnings? You wouldn't, especially when you consider three simple facts:
Now, Google isn't exactly a safe haven, as its past behavior during market shocks demonstrates. For instance, GOOG stock fell 45% during the 2022 inflation shock, a much steeper drop than the S&P 500's 25% peak-to-trough decline. Although GOOG rebounded to its pre-crisis peak by January 25, 2024, a similar sell-off occurred earlier this year amid trade war concerns, where GOOG fell nearly 30%, compared to a 19% drawdown for the S&P 500. More on this is available in our Buy or Sell Google Stock dashboard. On a separate note, see Archer Aviation: What's Happening With ACHR Stock?
Google's strategic AI initiatives are poised to significantly expand its business. Google Cloud stands to benefit immensely from the increasing adoption of AI by enterprises, which will naturally drive demand for both its infrastructure and platform services. At the same time, AI will optimize Search and advertising by enhancing relevance and targeting, ultimately leading to greater user engagement and improved return on investment (ROI) for advertisers. Furthermore, AI features are expected to boost YouTube engagement and fuel growth in its premium subscriptions.
Google's earnings might disappoint, and sales growth could slow from 13% last year to around 8-10% in the near term as companies focus on saving cash if the geopolitical tensions worsen and the economic growth slows.
Apart from macro and geopolitical risks, Google faces internal challenges, especially regarding its significant capital expenditures. Since 2022, the company's capital expenditures bill has topped $134 billion. A pressing question remains: What if these large-scale investments don't yield the expected returns? Regulatory headwinds also loom, with the Department of Justice pushing for a breakup to curb alleged monopolistic control in search. See – Google's $1 Trillion Lawsuit.
Then there's always the unexpected and unimagined. Definitely do not touch this stock if you can't withstand a 40% downside from current levels. The worst thing you could do is sell at that point. Instead, talk to an advisor who has seen four bear markets in the last 30 years and ask about the Trefis HQ strategy and other clever ways to take advantage of a market downturn. A key insight: much money is made in this market if you don't lose your composure. All in all, if you're a long-term investor looking to invest and forget for the next 3-5 years, GOOG stock right now could still be an interesting entry point.
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