Alphabet vs. Tesla: Unveiling the Best “Magnificent 7” Stock
The stock market is no stranger to drama – having witnessed the impressive rally of the “Magnificent 7” stocks in the past year. However, the landscape in 2024 is a different beast, with subdued movements in mega-cap stocks such as Tesla (TSLA) and Apple (AAPL). Tesla, in particular, has taken a significant beating, emerging as the worst performer in the S&P 500 Index so far this year, shedding about a third of its market value.
On the flip side, Alphabet (GOOG) has seen modest gains of 2.4% in 2024, trailing behind the Nasdaq Composite’s 9.2% return. Despite recent lackluster performance, Alphabet holds the unflattering title of being the worst-performing Magnificent 7 stock over the last decade, taking a hard hit post-earnings reports.
Given the current scenario, could Alphabet emerge as the top choice among the “Magnificent 7” stocks, especially with concerns around inflated valuations plaguing a significant portion of the market-leading group?
Insights from Investment Gurus: Dalio and Damodaran’s Take on Alphabet
Ray Dalio: The Case for Alphabet and Meta Platforms
Renowned hedge fund founder Ray Dalio views both Meta Platforms (META) and Alphabet as “somewhat cheap.” While some market segments express apprehensions over overheated stocks, Dalio remains unfazed, deeming the U.S. stock market – and its media-hyped sectors – far from the bubble territory. This perspective places him at odds with Warren Buffett, who has been trimming his stock portfolio and holding a substantial cash reserve.
Among the Magnificent 7 stocks, Dalio identifies Tesla as the lone “somewhat expensive” contender, contrasting sharply with valuation expert Ashwath Damodaran’s analysis.
Ashwath Damodaran: The Value of Tesla and the “Magnificent 7”
Market analyst Ashwath Damodaran asserts that Tesla stands as the most attractively valued stock among the Magnificent 7 crew. While he notes that Nvidia and Microsoft are somewhat overvalued, he positions Apple, Alphabet, and Amazon within proximity to their intrinsic values.
Despite their conflicting views on Tesla, both Damodaran and Dalio concur that Alphabet shines as a stock not plagued by overvaluation concerns.
Market Sentiment and Analyst Ratings on Alphabet
Alphabet receives a nod of confidence from Wall Street analysts, sporting a “Strong Buy” recommendation with a mean target price of $160.69, reflecting an 11.3% upside from recent closure prices. Approximately 86% of analysts covering GOOG advocate for either a “Strong Buy” or “Moderate Buy” stance.
While Meta Platforms, Microsoft, Nvidia, and Amazon receive higher analyst favor compared to GOOG within the Magnificent 7 cohort, Tesla and Apple find themselves in a less favorable light. Despite a relatively higher upside predicted for Tesla, its recent downtrend accentuates the gap between analysts’ target prices and the current stock value.
The Value Proposition of Alphabet Stock
Alphabet’s valuation paints an attractive picture, flaunting a modest next 12-month (NTM) price-to-earnings (PE) ratio of 21x, the lowest among its Magnificent 7 peers. Over the past couple of years, GOOG’s valuation multiples have experienced compression in both absolute and relative senses.
Despite facing challenges, such as regulatory hurdles and competition from emerging players like TikTok and established giants like Amazon, Alphabet appears resilient. While the generative AI competition heats up, Alphabet’s Gemini chatbot uniquely positions itself in the market, albeit not without controversy.
On the other hand, Bing’s underwhelming performance post Copilot integration fails to challenge Google’s search engine dominance. This scenario sets the stage for Alphabet to defend its market share against Microsoft’s assertive push in the online search arena.
Final Verdict: Is Alphabet Stock a Buy?
After a period of underperformance, Alphabet stock emerges as an intriguing investment opportunity. Analysts foresee an 11.4% and 10.6% growth in the company’s top-line for 2024 and 2025, respectively, with profits expected to escalate at an even more impressive rate.
Despite existing headwinds, encompassing regulatory concerns like the Play Store antitrust allegations, the risk-reward balance for Alphabet appears enticing at current price levels, with prevailing negatives potentially factored into the stock’s valuation.