One Magnificent Seven Stock to Buy on the Dip: Alphabet

As earnings season continues, many investors are closely monitoring the financial performance of their favorite companies. Among the "Magnificent Seven," several are set to report their results. These dominant, tech-driven companies are often at the forefront of investor interest.

However, investment in these firms can be challenging due to their typically high valuations. Fortunately, now is a great opportunity to consider one Magnificent Seven stock that you should buy on the dip without any hesitation. Just to clarify, this stock is not Nvidia.

Recent Performance of Alphabet

With a market capitalization of approximately $2.3 trillion, Alphabet (GOOGL) is often in the spotlight. Recently, the company faced a drop of 7% in its shares following the financial update for the fourth quarter of 2024, suggesting some disappointment amongst analysts.

In the fourth quarter, Alphabet's revenue grew by 12% year over year to reach $96.5 billion. While this growth is impressive, it fell short of expectations by about $90 million. A significant factor contributing to this disappointment was a larger-than-anticipated sales miss in the essential Google Cloud segment.

On a positive note, Alphabet exceeded bottom-line expectations, with diluted earnings per share (EPS) soaring by 31% to $2.15 in Q4. This metric has shown remarkable growth over the past decade, growing faster than revenue and highlighting Alphabet's ability to expand profitably.

Market reactions could also stem from the company's projected capital expenditures in 2025, anticipated to be $75 billion—much higher than the consensus estimate of $59 billion. This signals that Alphabet is not slowing down its spending as it expands its efforts in artificial intelligence (AI).

CFO Anat Ashkenazi mentioned during the Q4 2024 earnings call that they plan to increase investments mainly for technical infrastructure, including servers, data centers, and networking.

Evaluating the Long-Term Potential

It's easy to get caught up in short-term performance when companies report quarterly results. However, successful investors recognize the importance of taking a step back and considering the bigger picture. Alphabet remains an impressive company with considerable growth potential.

Despite its size, Alphabet has room to grow. The global digital advertising market is predicted to double to around $1.2 trillion in revenue by 2030. Given its leading market position, Alphabet is well-positioned to capture a substantial portion of this growth.

The company is also on solid financial ground. In Q4 alone, Alphabet generated an impressive $99 billion in annualized free cash flow, which occurred alongside significant capital investments aimed at growth. This cash flow helped fund $62.2 billion in share repurchases and $7.4 billion in dividends over the last year.

Alphabet has minimal financial risk. Its balance sheet is robust, with cash, cash equivalents, and marketable securities exceeding long-term debt by $84.8 billion.

Why Now Is the Right Time to Invest

Opportunities to purchase top-tier companies at reasonable prices don't come often. Right now, Alphabet shares are approximately 10% below their peak and are trading at a forward price-to-earnings ratio of 20.6. This valuation represents a discount compared to the broader S&P 500 index, which seems unwarranted given Alphabet's prospects.

Analysts project that Alphabet's EPS will increase at a compound annual growth rate of 13.6% over the next three years. This favorable outlook supports investing in the company at what is regarded as a below-market valuation multiple.

It’s time to act and capitalize on the current dip by investing in this Magnificent Seven stock, Alphabet.

Note: This article is for informational purposes only and should not be considered financial advice.

Stocks, Investing, Alphabet