The S&P 500 Reaches New Peak Levels. One Unyielding Shares Option Exists, Capable of Outpacing It Significantly in the Following Five Years.
In 2022, the market took a hit, most likely due to the harsh interest rate hikes initiated by the Federal Reserve. However, investor optimism has noticeably improved since then. From the beginning of 2023 to May 23 this year, the S&P 500 has experienced a phenomenal rise of 38%.
The ongoing AI revolution is empowering businesses at an unprecedented rate, propelling this broad index to record highs. Investors are undoubtedly thinking about where to deploy their capital. Allow me to introduce an unstoppable stock that has the potential to outperform the S&P 500 over the next five years. This stock deserves your undivided attention as a potential addition to your portfolio.
Stellar Performance
In the past five years, shares of Alphabet (GOOG 1.62%, GOOGL 1.60%) have soared by 206%. Investing $1,000 in this "Magnificent Seven" stock back in May 2019 would net you around $3,100 today, despite Alphabet's astronomical market capitalization of $2.2 trillion, a figure that outshines the GDP of many countries.
The stock's forward price-to-earnings ratio of 23.3 may seem steep compared to the S&P 500's 21.6, but the slight premium seems justified, presenting investors with an appealing buying opportunity.
Robust Growth Potential
Between 2018 and 2023, Alphabet reported yearly revenue and diluted EPS growth of 17.5% and 21.4%, respectively, a testament to its strong fundamental performance.
The digital advertising market, making up 77% of Alphabet's revenue stream, is expected to balloon into a $1.2 trillion global industry by 2030 – almost triple its current size, according to Grand View Research. As the undisputed market leader, Alphabet is perfectly positioned to reap the benefits.
Google's YouTube, the world's most popular streaming platform, with 2.5 billion monthly active users, is further propelling ad sales. With users consistently consuming more content, Alphabet looks set to capitalize on its increasing digital ad revenue.
Another exciting segment, Google Cloud, registered a stellar 26% sales growth in 2023. Google Cloud's Q1 operating income of $1.7 billion, along with a 9.4% operating margin, suggests promising profitability in the future.
Analysts project revenue and diluted EPS to grow at 11.5% and 19.2%, respectively, across the next three years.
Incredible Profitability
Alphabet boasts an impressive financial picture, with $108 billion in cash, cash equivalents, and marketable securities as of March 31. This substantial war chest surpasses the company's total long-term debt burden of $13 billion, ensuring financial stability for the foreseeable future.
Alphabet generated an impressive $16.8 billion in free cash flow in Q1, representing 21% of its overall Q1 revenue. This robust cash flow sets the stage for continued aggressive investment.
With a focus on enhancing its technical infrastructure for AI-related initiatives, Alphabet aims to strengthen its competitive edge in the rapidly evolving AI landscape.
Alphabet has demonstrated its ability to thrive in the past and seems well-equipped to outperform the S&P 500 in the years to come.
After considering the robust growth potential and incredible profitability of Alphabet, many investors are now contemplating where to invest their money in the finance sector. The stellar performance of Alphabet's stocks, with shares soaring by 206% in the past five years, presents an appealing buying opportunity for those looking to expand their investment portfolio.
