While there are many great stocks available, there can only be one “best stock to buy.” It was hard to narrow it down, but I think it is Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) is at the top of the list.
Although Alphabet is the fourth largest company in the world by market capitalization, it still has plenty of room to grow. By buying the shares now, investors are well prepared for 2025, as I believe the company can excel next year.
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Alphabet is better known as the parent company of Google, but also owns the Android operating system and YouTube, among other things. Although it has interests in many places, the majority of its activities can be attributed to advertising. In the third quarter, advertising made up 75% of total revenue, so it’s clearly a big part of the business.
The advertising business is fairly mature and grew only 10% in the third quarter. That growth isn’t rapid by any means, but it’s steady growth that allows Alphabet to invest in other areas that could deliver higher growth.
One of those areas is cloud computing, which also fits in nicely with the ambitions in the field of artificial intelligence (AI). Its cloud computing division, Google Cloud, has been performing great lately, with revenue up 35% year over year. This growth is happening for several reasons, including Google Cloud offering access to one of the best generative AI models, Gemini.
The use of the Gemini model in APIs (application program interfaces) – plug-and-play apps that allow programmers to easily use another out-of-the-box application – grew fourteenfold year over year. Building generative AI into various workflows and interfaces is becoming increasingly popular, and its use will only increase in the coming years, boosting Google Cloud’s revenues.
There are several other reasons for a company to invest in Alphabet, but it all comes down to keeping the stable advertising company keeping the lights on and then using those cash flows to build other high-growth business areas.
Strong financial results are another important reason to invest in the stock.
In the third quarter, Alphabet’s revenue grew 15% across the company. Thanks to improved operational efficiencies, earnings per share (EPS) rose to $2.12 from $1.55 last year, an increase of 37%.
That’s an incredibly strong performance from a fairly mature company, but the stock still gets no respect. It trades at just 20.9 times forward earnings, which is less than the broader market as measured by the S&P500, which trades at 24.6 times forward earnings.
GOOGL PE ratio (forward) chart
GOOGL PE ratio (forward); data by YCharts. PE = price/profit.
That suggests strong value, but the undervaluation becomes more apparent when you compare the stock to some of its big tech peers. Of those who have similar financials to Alphabet — Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL)And Metaplatforms (NASDAQ: META) — it trades at the lowest multiple.
Data source: YCharts. Note: Q3 includes the calendar quarter before Q3; Apple and Microsoft’s results are in the same time frame, but on a different fiscal year calendar.
Alphabet is doing much better than Apple and Microsoft, but trading at a much lower level. As a result, I think investors should reconsider their positions in these two and look at Alphabet and Meta (which are also at the top of my list of the best stocks to buy right now).
However, part of this valuation discount stems from concerns that the Justice Department wants to break up Alphabet by forcing the sale of Google Chrome. This is obviously a concern, but we are likely still some time away from a resolution. This decision will go to trial and will take some time to resolve. The last high-profile DOJ breach occurred when it went after Microsoft in the early 2000s. The lawsuit was originally filed in mid-1998 and concluded in late 1999. The appeal was not heard until mid-2001 and the final recovery process was completed at the end of 2002.
As a result, we won’t know for years what the final outcome will be or whether Google Chrome will be spun off at all. That’s why I think it’s a smart move to use the short-term weakness of this news to your advantage.
Alphabet is a fantastic company, but it doesn’t trade at the same pace as its peers. While there are some unknowns about how the DOJ settlement will ultimately play out, I think these fears are already priced into the stock. As a result, investors should take this opportunity to buy more shares before this trend comes to an end.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Meta platforms. The Motley Fool holds positions in and recommends Alphabet, Apple, Meta Platforms and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Here’s My Best Stock to Buy Right Now was originally published by The Motley Fool
