Alphabet Inc: New Strategies Show More Growth Potential For GOOG Stock

Alphabet IncWhat’s Ahead for Google Stock

Alphabet Inc (NASDAQ:GOOG) stock is up almost over 40% over the past year. But for a $500-billion company, you might be thinking that Google stock can’t climb much higher. On the contrary, Google still might have considerable upside over the next few years. Here are three reasons why you might want to take a look at Google stock.

Brand Power

The Google brand has become so powerful that searching for something on the Internet has become synonymous with “Google it.” Forbes even ranks Google as the third most valuable brand in the world. (Source: “The World’s Most Valuable Brands,” Forbes, last accessed March 3, 2016.)

With that kind of power, other search engines don’t stand a chance. Google dominates the market, with 88.3% of global Internet users searching the Web using the company’s search engine. (Source: “Worldwide desktop market share of leading search engines from January 2010 to January 2016,” Statista, last accessed March 30, 2016.) The next closest rival is Microsoft Corporation’s (NASDAQ:MSFT) Bing, with only a 4.85% share of the global search engine market.

Not surprisingly, Google also dominates the market for search ad revenue. According to research firm eMarketer, Google holds 54.5% of the market. (Source: “Google Will Take 55% of Search Ad Dollars Globally in 2015,” eMarketer, March 31, 2015.) The next closest competitor is Baidu Inc (NASDAQ:BIDU), which benefits greatly from China’s ban on Google, with 8.8% of the market.

Google also owns several of the world’s most valuable assets such as YouTube, “Android,” “Chrome,” and “Google Maps.” By the end of 2015, 80.7% of all smartphones sold globally were phones installed with Android.

Cloud Computing

Google is starting to take its cloud computing efforts a lot more seriously despite trailing market leaders, Inc. (NASDAQ:AMZN) and Microsoft. And the company has every reason to as growth in the cloud computing market is taking off.

The cloud computing market is expected to rise to $27.4 billion in 2016 compared to $14.9 billion in 2014, according to Synergy Research Group. (Source: “Amazon and Microsoft to Face Off in Cloud Computing Space,” Market Realist, February 9, 2016.) The majority of cloud revenues are generated from infrastructure as a service (IaaS).

Amazon holds a commanding lead, with 36.9% of the market, while Microsoft is second with 8.7%. Google is even further behind, with only about 2.5% of the market, but that could soon change. (Source: Ibid.)

According to Morgan Stanley, Google’s cloud business generates only $500 million a year, which is not even close to the $9.6 billion Amazon rakes in from its “Amazon Web Services” (AWS). (Source: “The Tech Exec Who Wants the Cloud to Be Google’s Moneymaker,” Wired, March 23, 2016.)

But the search engine giant has been beefing up its cloud division since the company named Diane Greene chief of the cloud business in November. Just last week, Google announced that it is going to open cloud data centers in Oregon and Japan, with plans to add another 10 over the next 12 to 18 months.

Google’s cloud computing bet is already starting to pay off. And it’s doing that by luring customers away from rival Amazon.

In a big win, Google announced two weeks ago that it reeled in Apple Inc. (NASDAQ:AAPL) away from Amazon as a customer for its “Google Cloud Platform.” The deal will help Google catch up to Amazon a bit, as it reported that the contract is worth between $400 and $600 million. (Source: “Apple-Alphabet Cloud Accord Could Help Google Catch Up With Amazon,” Investor’s Business Daily, March 23, 2016.) Apple will now be using cloud services from both Amazon and Google.

Google has also secured customers such as Spotify, The Coca-Cola Co (NYSE:KO), Walt Disney Co (NYSE:DIS), and Home Depot Inc (NYSE:HD).

Watch out for Google’s cloud computing business to take off over the next few years.

Driverless Cars

Here’s a project that Google is heavily investing in, but it won’t pay off for at least few years. But when it does, it has the potential to provide a significant boost to Google’s already massive revenue stream.

Google is one of the companies most committed to driverless cars, as it has been testing the technology for about six years. According to the company, Google’s driverless cars have logged about 1.4 million miles in autonomous mode in a few small towns in the U.S. (Source: “Google now testing self-driving cars in Washington,” CNBC, February 4, 2016.)

According to the Boston Consulting Group, the market for autonomous cars will be about $42.0 billion by 2025 and may be a quarter of global auto sales by 2035. Further, there could be 18 million partial driverless cars and 12 million fully driverless cars by 2035. (Source: “Driverless-Car Global Market Seen Reaching $42 Billion by 2025,” Bloomberg, January 8, 2015.)

Investors will have to be patient, though, for Google to grab a piece of that market. The company expects to have its driverless cars ready to hit the roads by 2020.

The Bottom Line on Google Stock

As massive as Google already is, there’s still room for lots of growth. With its significant brand power, venture into cloud computing, and driverless car initiatives providing opportunities for continued growth, investors might want to take a look at Google stock.