Alphabet Inc: The Reason to Be Bullish on Google Stock (and It’s Not Search)

Alphabet IncGoogle Stock: The 800-Pound Gorilla

Alphabet Inc (NASDAQ:GOOG) is what investors call an “800-pound gorilla.” It’s big, it’s strong, and you better stay out of its way to avoid getting crushed.

Going bullish on Google stock is like betting that an 800-pound gorilla will win a fight: it’s a no-brainer. It doesn’t matter whether we’re talking about plug-and-play media streaming devices or virtual reality headsets, I automatically give Google the edge in any industry. That’s because Google can just keep swinging until it’s the last competitor standing.

That kind of market power is amazing…

We all know that Google (now called Alphabet) is a great center of innovation. After all, the company has been a leader of technological progress for more than a decade. That is what has kept GOOG stock rising by more than 200% over the last five years.

No one thinks of Alphabet as just a search company. Think of “Android,” which powers a majority of the smartphones on the planet, or “YouTube,” the biggest online video outlet in the world. The firm is continuously moving into—and dominating—new business sectors.

In fact, here are three factors that could keep its share price surging:

1. Growing Profits

Unlike some of the newer giants in Silicon Valley, Alphabet has no problem cranking out profit for shareholders. The company that started as a search engine still draws most of its revenue from online advertising. Whether it’s on one of Google’s web sites or a partner web site, the company still collects a big slice of money spent in digital advertising. It is the toll collector of the Internet. If advertisers want to get eyeballs onto their ads, they have to pay Google a toll fee. Last quarter, those tolls added up to $32.35 billion in revenue. (Source: “Alphabet Announces First Quarter 2016 Results,” Alphabet Inc, April 21, 2016.)

2. Cloud Computing Services

Those paying attention to Amazon may have noticed that the company turned profitable last year. It only happened because the firm’s cloud computing business is such a cash cow. Now, Google is following Amazon down that road.

The search company has the scale and resources to pose the first real threat to Amazon’s dominance in cloud computing, which is bad news for AMZN shareholders. However, it could mean that GOOG stock gets an additional stream of profits it never even anticipated.

There are signs of this transition already. Spotify, the Netflix-for-music streaming app, recently signed a massive deal to process its user data via Google’s cloud computing services. This business line could end up being a major tailwind for GOOG stock over the next few years. (Source: “Spotify Moves Itself Onto Google’s Cloud—Lucky for Google,” Wired, February 23, 2016.)

3. Driverless Cars

A lot of analysts, myself included, are bullish on driverless technology. I really think the transformative power of this technology can’t be overestimated, especially considering that major automakers are fully on board with it. Unlike the electric car, there’s no one trying to stop this from happening. We can say, with reasonable certainty, that self-driving cars are going to reshape the transportation industry in ways we never imagined before.

Google is incredibly well positioned to profit from these shifts. The company pioneered driverless technology, but instead of building its own car, Google is licensing out its technology to major automakers like Fiat. It’s basically getting in on the rise of driverless cars without the burdensome costs of manufacturing. Personally, I think that’s a really smart move on Google’s part.

Think about all the shipping containers that criss-cross the world. After arriving in their port of destination, most of those containers are loaded up to trucks that deliver them to towns and cities across America. The trucking industry is huge.

But what happens when driverless technology invades their business? Aside from the trucks themselves, drivers are the biggest costs in trucking. What happens when they’re no longer needed because trucks start driving themselves?

Any smart business would go for the cheaper option—it’s what makes sense. But from the standpoint of companies like Google, this presents an interesting opportunity. Once again, Google wouldn’t need to spend much cash on manufacturing to take advantage of this area. All the company has to do is license out the technology and watch the profits roll in.

For all these reasons and more, I remain incredibly bullish on Google stock.