Any investor in growth stocks is counting their losses at the moment. In fact, over the past six months, the Nasdaq, which is full of tech and high-growth companies, has fallen around 28%. Over the past year, it has dropped an even more depressing 31%. However, despite the pain that my portfolio has felt due to this tech sell-off, as a long-term investor, I feel that this is a great time to pick up some quality companies on the cheap. Alphabet (NASDAQ: GOOGL) is one of my favourite growth stocks right now, and I’ve recently initiated a small position.
Over the past six months, the Alphabet share price has largely tracked the Nasdaq index, falling around 25%. In the past year, it has fallen 12%. Alongside reacting to the general tech sell-off, there are several other reasons for this decline.
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Firstly, inflationary pressures are causing large issues for the tech giant as other companies are being forced to reduce their advertising budgets to deal with increasing costs. As Alphabet makes most of its revenues from digital advertising, this may mean declining revenues for the group.
Secondly, YouTube, which makes up over 10% of Alphabet’s revenues, is facing rising competition from the likes of TikTok. This has caused YouTube’s growth to slow to around 14% in the first quarter, which could cause further negative investor sentiment.
Evidently, there are several risks with Alphabet shares. However, in comparison to other growth stocks, I believe that the company is well equipped to deal with these pressures.
For one, there were many positives to take away from the recent results. Indeed, net income from operations rose to over $20bn, up from $16.4bn last year. This highlights that the firm’s operations are performing resiliently in the current macroeconomic climate.
Further, I’m impressed by the firm’s diversified business model. For instance, alongside its large advertising business, it’s also one of the global leaders in the cloud market, which is experiencing strong growth right now. For instance, in the Q1 results, the company’s cloud revenues rose 43% year-on-year to $5.8bn. Amid surging revenues, I equally feel that the cloud business is close to profitability. This factor could help the Alphabet share price surge.
What am I doing with this growth stock now?
For me, Alphabet is a no-brainer buy at its current price and therefore, I’ve initiated a position recently. Indeed, it currently trades at a price-to-earnings ratio of under 20, placing the growth stock at similar valuations to companies in very low-growth industries. This indicates that the Alphabet share price may have now reached the bottom.
And the company has authorised a share buyback programme of $70bn, which should help boost metrics such as earnings per share. It also indicates that management feels the current share price is too low. I share this view and will continue to add to my position during the current bear market.