3 reasons to consider buying Alphabet shares in August

Alphabet‘s (NASDAQ:GOOG) found itself in trouble with US regulators over Search and Android. But with the company performing well on a number of fronts, is this an opportunity to buy shares at a bargain price?

Thereâs much more to Alphabet than Search and Android. And at a price-to-earnings (P/E) ratio of 21, the stock’s trading at a much lower multiple than some of its competitors.

Cloud

One big reason for optimism is Googleâs Cloud division â in its Q2 update, the firm reported 32% revenue growth and operating income up 141%. And there could be more to come on both fronts.

Demand’s clearly strong and Alphabet’s investing aggressively to meet this. The company plans to spend $85bn in 2025 and this should translate into significant sales growth going forward.

As the business continues to increase its scale, I also expect operating margins to improve. These are currently at 21%, which is roughly half of what Amazon achieves with AWS.

In short, Iâm expecting higher sales and wider margins from Googleâs Cloud division. And this is a powerful combination that investors should take note of.

YouTube

YouTube’s another of Alphabetâs key strengths. The streaming service grew its revenues by 13% in Q2, but the most significant developments are arguably in its market position.

Source: Nielsen

According to data from Nielsen, streaming’s rapidly growing its share of US TV screen time. And YouTube’s leading the way, with a market share equivalent to Netflix and Disney combined.

This doesnât include time spent watching videos on mobile phones or computers, where it seems likely that Alphabetâs platform has an even stronger presence. And it also excludes YouTube TV.

Alphabetâs success to date has been primarily driven by using a dominant market position to generate advertising revenue. So YouTubeâs continuing success is worth paying attention to.

Waymo

Waymoâs revenues and profits aren’t significant â yet. But the market for robotaxis is expected to reach $189bn by 2034 and Alphabet’s already launched operations in multiple US cities.

Importantly, the business has managed to succeed in overcoming what Tesla currently sees as its largest obstacle â regulatory approval. And being first to market brings important advantages.

The most important is a head start in terms of real-world data to use in training its systems. This should improve safety, which helps the firmâs prospects for securing permits in new areas.

Being first isnât a guarantee of long-term success. But if the robotaxis market grows as analysts are expecting, Waymo could develop into something very valuable for Alphabet shareholders.

Regulation

Alphabet’s facing regulatory challenges around its Android system and its Search monopoly. But thereâs a lot for investors to be positive about elsewhere in the business.Â

Google Cloud, YouTube, and Waymo arenât big enough to justify the firmâs current market value by themselves â at least not yet. But they are three strong and encouraging businesses.

A lot hinges on the future of Search. But itâs not Alphabetâs only business by any means and at a P/E ratio well below Meta Platforms, or Microsoft, the stock’s well worth considering.

The post 3 reasons to consider buying Alphabet shares in August appeared first on The Motley Fool UK.

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Stephen Wright has positions in Amazon and Walt Disney. The Motley Fool UK has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.