This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There's no denying that 2022 has not been a great year for Amazon (NASDAQ: AMZN) stock. It's easy to look at a chart, see that the stock is down over 40% year to date, and begin to panic.

Understanding why the stock has cratered is a bit more complex, though. At its core, Amazon can be thought of as two businesses: E-commerce and cloud computing. While the company has made a number of strategic investments in advertising, gaming, and media, the e-commerce and cloud segments are, by far, its largest operations.    

Given the lingering effects inflation has on consumer purchasing power, coupled with fears of recession and corporations adjusting budgets, both the e-commerce business and the cloud segment for Amazon have been beaten down.

As a result, the company is laying off employees in an effort to scale back expenses and preserve operating capital. While all this certainly is concerning, investors need to zoom out and think long-term. Amazon has several growth levers that have not reached peak performance, and the stock has done nothing but fall since its split earlier in the year. Let's dig into Amazon's entire business, analyze what's growing and what's not, and determine if the stock's current valuation makes it a buy. 

The current state of Amazon

For the three months ended Sept. 30, 2022, Amazon reported $127 billion in total revenue, up 15% year over year. The company's North American operation increased 20% annually, while its cloud segment, Amazon Web Services (AWS), increased 27% year over year. Meanwhile, Amazon's International segment decreased 5% year over year. This is not entirely surprising when accounting for the fact that the company experienced a $5 billion negative effect from foreign exchange during the third quarter.

While revenue increased in two out of three of Amazon's reporting segments, it's more important to analyze the profitability profiles of each business. Despite 20% revenue growth in North America, this segment reported nearly $400 million in operating losses during the quarter. On top of that, the International segment reported $2.5 billion in operating losses just in Q3 alone. It's important for investors to remember that these segments have been operating near breakeven levels for several quarters now.  

Now, as inflation continues to affect consumer spending and corporate budgets, executives must take a look at the entire business and find ways to stretch cash. During the Q3 call, Amazon CFO Brian Olsavsky stated:

As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as the increased foreign currency headwinds I mentioned earlier, and we expect these impacts to persist throughout the fourth quarter. As we've done at similar times in our history, we're also taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.

Management did not mince their words. Amazon is cutting costs, mostly in the form of headcount reductions. While this can appear as a cause for concern on the surface, these synergies are what mature companies must execute during times of an unclear macroeconomic outlook. 

When in doubt, zoom out

While Amazon separates its revenue into North America, International, and AWS segments, a number of sub-categories comprise these three larger streams. The table below illustrates Amazon's revenue by sub-category for the last five quarters.

Data source: Page 14 of Amazon's Q3 2022 earnings press release.

Looking at the data above, let's isolate two viewpoints: Quarterly growth and annual growth. Comparing each sub-category to Q3 2021, investors can see that Amazon is generating growth across its entire business. Now, if we dilute this to quarterly growth throughout 2022, investors can also see that revenue is either growing, or in a worst-case scenario, is flat quarter over quarter.

If we zoom out, we should think about two things here. First, it's pretty amazing that Amazon is generating growth across its entire business in consecutive quarters, even during times of volatile economic activity. However, as pointed out above, revenue growth is only one component to keep in mind. While Amazon has generated consistent growth, it has also invested heavily in the business, and so not all these sub-categories are profitable.      

Where do we go from here?

Given the current economic climate and the financials above, freezing new hires and having layoffs is a tough, but necessary, reality. In an interview on CNBC, CEO Andy Jassy said that the layoffs would occur throughout the fourth quarter and carry into 2023. More specifically, he acknowledged that the cost reductions would be contained to Amazon's devices and services segment, as well as stores.

It's important to note that during this interview, Jassy assured investors that fulfillment workers would not be affected due to anticipated demand from the upcoming holiday season.

During the earnings call, Olsavsky stated: "We're also continuing to invest in new infrastructure to meet capacity needs, expanding to new geographic regions, developing new services and iterating quickly to enhance existing services."

As an investor, the above comment is encouraging. While management is admitting that the organization as a whole may be bloated, they're only reducing expenses in non-core initiatives. In other words, Amazon will continue to fund areas such as the cloud and advertising, both of which generate consistent growth and margin.

Amazon is currently trading roughly 2 times price-to-sales, or about half what it was trading at this time last year. As the stock trades near 52-week lows, it is tempting not to scoop up some shares.

In the long term, Amazon is a terrific, blue-chip stock to own. And given its current valuation, now is a great opportunity to lower your cost-basis. Long-term investors should keep a keen eye on the following earnings reports to ensure that management is executing on the cost reductions. Should these go according to plan, Amazon should recognize increased profits, which it can then use to stockpile cash or invest in growth areas when the time is right.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Amazon stock is still a surefire buy despite growth plateau appeared first on The Motley Fool Australia.

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Adam Spatacco has positions in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's no surprise that 2022 has been a volatile year for both the capital and crypto markets. The days of meme stocks and mooning assets seem so long ago. Since its public debut in April 2021, Coinbase (NASDAQ: COIN) has been one of the most scrutinized stocks on the Nasdaq. It's become challenging to keep up with the company's developments amid increasing regulatory concerns over the crypto markets and waning investor enthusiasm.

Yet despite all of this turbulence, Coinbase has managed to make some significant progress. In this article, we are going to discuss how Coinbase has started laying the foundation to become a full-spectrum crypto conglomerate and mature beyond simply a trading exchange.

Big tech follows Wall Street 

Over the summer, Coinbase announced that it had partnered with asset-management firm BlackRock. More specifically, the partnership revolves around BlackRock's proprietary risk-management software called Aladdin. At a high level, Aladdin's software is leveraged by hedge funds and other financial institutions to process analytics across stocks, bonds, and foreign exchange currencies as well as derivatives and alternative assets. While that is an impressive roster of asset classes, do you see anything missing? Coinbase did.

According to a press release on Coinbase's blog, BlackRock selected the exchange to serve as its integrator to provide "crypto trading, custody, prime brokerage, and reporting capabilities to Aladdin's Institutional client base who are also clients of Coinbase." 

While this partnership is nascent, it is probably not a surprise that other large companies, albeit in different industries, took notice. Just last week, Internet behemoth Alphabet announced a strategic partnership with Coinbase. Let's explore why this is a big step forward for Coinbase and the crypto economy. 

Is this partnership a big deal?

There are a lot of moving pieces in Alphabet's deal with Coinbase, and both companies are well-positioned to benefit. 

Essentially, Alphabet has decided that it will allow its cloud customers to pay for its services in Bitcoin, Ether, or Dogecoin should they choose. Coinbase will be the technology powering these payments via its Coinbase Commerce offering. This is an interesting position for Coinbase because as Alphabet's cloud platform continues to grow, there is an argument to be made that Coinbase's infrastructure will power more transactions. The two biggest variables in question are the pace at which adoption of crypto payments moves, and the increasing number of crypto tokens supported by Google Cloud.     

While this is exciting for Coinbase, this is also a big win for Alphabet. While Amazon and Microsoft dominate cloud computing, Alphabet's platform, Google Cloud, is quickly gaining market share. According to the terms of the partnership, Coinbase "selected Google Cloud as a strategic cloud provider to build advanced exchange and data services. In addition, Coinbase will use Google Cloud's powerful compute platform to process blockchain data at scale, and enhance the global reach of its crypto services by leveraging Google's premium fiber-optic network." 

According to CNBC, Coinbase will move some of its existing applications away from Amazon's cloud platform, AWS. This is a huge deal for Alphabet. While it is still early innings, Coinbase's management has not allowed the crypto winter to deter its vision. Despite cratering asset prices and lower trading volumes, Coinbase's leadership has focused relentlessly on the wider adoption of crypto, especially with large institutions. 

Keep an eye on valuation

Owen Lau is an equity research analyst with Oppenheimer. He currently has a Buy rating on the stock and a projected price target of $107. During a recent interview, he was asked about the implications of this partnership and what it could mean for Coinbase.

Interestingly, although not surprising, Lau did not explicitly state whether this deal would impact Coinbase stock in the short term. Instead, his rationale is that since the markets are still operating in a crypto winter, investors are best served acting with caution.

Coinbase is slated to release third-quarter 2022 earnings on November 3. While there may be some near-term volatility leading up to earnings, prudent investors should wait until after the earnings release to make a decision about the stock. While Coinbase is trading well-off its highs, it is still very much a speculative stock to own. It is highly likely that investors will learn more about the company's progress with BlackRock, Alphabet, and any other potential partnerships during the call. 

One thing that is highly likely is that crypto is here to stay one way or another. Its role in the larger economy and financial markets will certainly evolve. However, investors should feel encouraged that the world's largest financial and technology firms are not only involved with crypto but are also partnered with Coinbase specifically. Coinbase could be a good stock to own for investors with a long-term market outlook. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This crypto stock just got a huge nod of approval appeared first on The Motley Fool Australia.

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Adam Spatacco has positions in Alphabet (A shares), Amazon, Coinbase Global, Inc., and Microsoft. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Microsoft, Alphabet (A shares), Alphabet (C shares), Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.       

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Throughout 2022, one of the industries that has been affected the most by supply chain disruptions and inflation is the semiconductor industry. As if navigating these economic headwinds weren't challenging enough, the federal government recently imposed restrictions on the sale of chips designed by the likes of market leaders Nvidia (NASDAQ: NVDA) and Advance Micro Devices, Inc.(NASDAQ: AMD) to China and Russia, citing national security threats. This news came one week after Nvidia's lackluster second-quarter fiscal 2023 results.

The company's earnings flop and the new sale restrictions led some investors to dump Nvidia stock. As a result, Nvidia plummeted to a new 52-week low. While the company seems to have a mountain to climb, there are several reasons investors may want to take a second look at Nvidia. One of the most interesting aspects of semiconductors in general is how central the products are to power industries such as cryptocurrency, big data, and gaming. Despite subpar results in its latest earnings, Nvidia has several tailwinds that could propel the company forward in the long run.

Peeling back the onion  

Nvidia reports its revenue in two primary segments: graphics and compute and networking. For the second quarter (ended July 31), Nvidia reported $2.8 billion in graphics revenue, which represented a 28% decline year over year (YOY). By comparison, the company's compute and networking segment generated $3.9 billion in quarterly revenue, up 50% YOY. Given the disparity between these two primary segments, prudent investors may want to take a deeper dive into Nvidia's five market platforms, which combine to form the two main segments. 

The table below illustrates Nvidia's five market platforms and the respective growth profile of each:

Investors can see that Nvidia's gaming and data center businesses combine to form the majority of the company's revenue. The data center business grew by a whopping 61%, reaching $3.8 billion in revenue. According to management, the increase in data center revenue was driven by the company's hyperscale business doubling. Hyperscale data centers are much larger than traditional data centers and typically outperform them because of the volume of data they can process and the superior storage services they can provide. As corporations of all sizes become more reliant on data to make decisions, it is not surprising to see Nvidia benefit from this tailwind.

It is important to note that Nvidia's management explained to investors that while hyperscale customers increased in North America, the company's business in China slowed down significantly due to lingering economic challenges from the pandemic.  

While Nvidia is far from the only technology company that faced revenue challenges in certain geographic regions, the company may be facing a longer period back to robust growth -- alongside other tech companies -- given the federal government's recent mandate prohibiting the sale of chips and data processing products to China and Russia. While this might spook some investors easily, we must remember that Nvidia is a global organization with several different operating segments. Although its hyperscale data center business is likely to face some near-term headwinds, the company has several other end markets it can benefit from. 

Is gaming just a fad?

Nvidia's gaming segment generated $2.0 billion in quarterly revenue, down 33% YOY. The gaming segment is interesting because it serves as the nucleus to so many other industries, such as personal computing, graphics cards, and cryptocurrency. In fact, one of Wall Street's most highly regarded technology analysts, Gene Munster, recently said during an interview with CNBC that for Nvidia's business, the term "gaming" is code for "crypto."  

Although the diminishing enthusiasm for crypto has affected the sale of high-end computer hardware, it is important to understand that the economic challenges companies and investors alike are facing will eventually subside. Stated differently, investors should use a long-term time horizon when analyzing an investment. While the company's gaming segment has slowed down materially, it is highly unlikely that the crypto market or demand for graphic processing units (GPUs) has been permanently destroyed.      

Year to date, leading crypto tokens Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are down 60% and 64%, respectively. Given the volatility of the stock market and the general economic outlook, many investors have trimmed positions in equities and alternative assets such as cryptocurrency in an effort to flock to cash as a safe haven.

Keep an eye on valuation

The entire year of 2022 has been rough for Nvidia. Earlier this year, the company scrapped its plans for its proposed megamerger with competitor Arm Semiconductor. Additionally, economic conditions in China due to the pandemic have affected the company's data center business. Moreover, the federal government has banned Nvidia from selling certain products to China and Russia, citing national security concerns. Lastly, the cratering crypto market has significantly affected demand in Nvidia's gaming division. All of these hiccups have contributed to a massive sell-off, with the stock hitting a 52-week low last week. 

But even with all of that said, some on Wall Street remain bullish. Mizuho analyst Vijay Rakesh recently reiterated a buy rating on the stock, citing strong demand in the hyperscale business. Additionally, several investors on a CNBC panel recently claimed that given management's weak guidance for the next quarter, the stock is likely not headed higher anytime soon. For this reason, Nvidia could soon be a compelling buy.

The most prudent action for investors is to assess the company's next-quarter results and pay close attention to management's guidance as we head into next year. Should Nvidia stock continue to slide over the next few months, investors with a long time horizon may have a lucrative chance to lower their cost basis before the stock rises again.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Check out this US stock if you're worried about crypto and chip shortages appeared first on The Motley Fool Australia.

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Adam Spatacco has positions in Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Bitcoin, Ethereum, and Nvidia. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This has been a busy year for Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL). The company has acquired two companies in the cybersecurity space and most recently completed a stock split. Alphabet recently reported second-quarter 2022 earnings and the results were mixed. Though the search and cloud segments were big winners, some investors may be worrying about how the internet giant can sidestep its competition as well as combat macroeconomic factors such as lingering inflation. Let's dig into the Q2 earnings and analyze if Alphabet appears to be a good buy, or if investors should look elsewhere.

Is the slowdown in revenue a cause for concern?

For the second quarter, which ended on June 30, Alphabet generated $69.7 billion in total revenue. This was an increase of 13% year over year. By comparison, Alphabet grew revenue by a staggering 62% year over year during the same period in 2021. Given the slowdown in top-line growth, investors may be quick to sell and search for new investment opportunities. However, the most prudent thing investors can do is look at where Alphabet may be experiencing levels of stagnation or even declining growth, and which areas are performing well. The table below illustrates Alphabet's revenue streams during Q2 2022, and percentage changes year over year.

Data source: Alphabet Q2 2022 Earnings Press Release. The financial figures above are presented in millions of U.S. dollars. NM = non-material.

The table above shows that the search and cloud segments increased 14% and 36% respectively. Advertising from YouTube only increased only 5%. During Q2 2021, YouTube advertising revenue increased by 84%. The massive slowdown in growth is, in part, driven by competing applications such as TikTok. It is important to note that Alphabet has rolled out its own derivative of TikTok, YouTube Shorts. However, management noted during the earnings call that YouTube Shorts is in early development and not yet fully monetized. Additionally, investors learned that vendors have been slashing advertising budgets across different industries due to uncertainty around the broader economic environment, thereby posing a systemic risk to Alphabet's ad revenue stream.

Given that advertising budgets and lingering inflation do not have a clear path to subside, investors may want to focus on other areas of Alphabet, namely cloud computing.

Are the acquisitions paying off?

Earlier this year Alphabet acquired two cybersecurity companies, Mandiant and Siemplify The strategic rationale behind these transactions was that Alphabet would integrate the new products and services into its Google Cloud Platform. This was a direct effort to combat cloud behemoth Amazon.com, Inc. (NASDAQ: AMZN), as well as cloud and cybersecurity competitor Microsoft Corporation (NASDAQ: MSFT). 

For the quarter that ended June 30, Alphabet reported $6.3 billion in cloud revenue, up 36% year over year. To put this into context, during Q2 2021 Google Cloud was operating at roughly $18.5 billion in annual run-rate revenue. Only one year later, Google Cloud is now a $25.1 billion annual run-rate-revenue business. While this revenue growth is impressive, it certainly has come at a cost. Google Cloud's operating loss was $858 million for Q2 2022, compared to a loss of $591 million during Q2 2021. Despite robust top-line growth, Alphabet has yet to turn a profit on its cloud platform. By comparison, Amazon's cloud business operates at a profit, with margins expanding from 28% in Q2 2021 to 29% in Q2 2022.

Keep an eye on valuation

From its stock split in early July, Alphabet stock is up roughly 5%. With cash on hand of $17.9 billion and free cash flow of $12.6 billion, it's difficult to make a case that Alphabet is in financial trouble. However, Alphabet is at a critical juncture where it is seeing competition from much smaller players, as well as big tech peers.

Perhaps investors should be looking at Alphabet as a growth company. Given its cloud business has a lot of room to grow, and that economic pain points like inflation will not last forever, it could be argued that Alphabet will generate meaningful growth in the years ahead. While the stock has been somewhat muted since the split, now may be a decent time to dollar-cost average or initiate a long-term position while keeping a keen eye on upcoming earnings reports. While Alphabet is not yet out of the woods, there are several reasons to believe that now is a good time to buy the stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Alphabet stock a buy after Q2 earnings? appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet (A shares), Amazon, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

During Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) fourth-quarter and full-year 2021 earnings call on Feb. 1, the company announced that its board of directors approved a 20-for-1 stock split, effective on July 15. Alphabet is just one of many big tech companies to announce stock splits in recent years. In 2020, FAANG leader Apple (NASDAQ: AAPL) completed a stock split, as did Tesla (NASDAQ: TSLA). In 2021, semiconductor pioneer Nvidia (NASDAQ: NVDA) completed a stock split, and recently both Amazon and Shopify announced stock splits for later this year.

If you are one of the many investors considering buying into Alphabet stock right now, the announced split raises the question of when to make the purchase. Let's take a look and see if Alphabet is worth an investment now, before the split, or if waiting until after the split occurs better fits your investment profile. 

It might help to take a look at big tech counterparts

Stock splits are generally not meant to change the market value of a company. Rather, when a stock split occurs, the number of outstanding shares increases by a pre-determined multiple. Subsequently, the share price drops in proportion to this ratio such that the overall value of the company doesn't change.

But while the intrinsic value doesn't change, sometimes emotion can outweigh logic in the capital markets, causing stock prices to rise before a stock split occurs. Some investors will choose to buy a stock before the split occurs, hoping that after the split goes into effect and the shares appear less expensive, more investors will buy the stock, thereby boosting the stock price in a short period of time. In essence, these investors are riding the momentum in an effort to generate a short-term profit. Although there is merit to this trading strategy for some types of investors, let's dig into a few examples of why buying before a split, and holding throughout the split event, may be more profitable in the long term.  

As Mark Twain is rumored to have said, "history doesn't repeat itself, but it often rhymes." When it comes to recent stock splits, more often than not investors have experienced similar paradigms in trading activity.  

Apple completed a stock split on Aug. 31, 2020. On a split-adjusted basis, Apple stock closed at roughly $129 per share following the split. Roughly one month later, the stock price had declined by 10%, closing around $116. However, had an investor held the stock, they would have appreciated a 28% return, as Apple's current stock price is around $166 per share.

Similarly, Tesla completed a stock split on the same day as Apple in 2020. On a split-adjusted basis, Tesla stock closed around $498 per share following the split. Approximately one month later, Tesla's stock had decreased by 14%, closing around $429 per share. Just like with Apple, had investors held Tesla stock throughout the short-term volatility and momentum trading, they would have earned a 96% return, as Tesla now trades at roughly $975 per share.

Then there's Nvidia, which completed a stock split in July 2021. On a split-adjusted basis, the company's stock closed at $186 per share following the split. Roughly one month later Nvidia stock had increased by 12%, to $208 per share. But had you held onto the stock until today, you would have an 18% return, as the stock currently trades for $219 per share.  

The overarching theme in all of these examples is that the stock price has typically increased in the long term, and shown resilience even with short-term momentum traders buying and selling in and out of the stock during these pivotal events. 

Impressive profitable growth 

For the fiscal year ended Dec. 31, 2021, Alphabet generated $257.6 billion in revenue, up 41% from 2020. The company reported impressive growth across all of its business segments, in both revenue and operating profits. Alphabet's total operating income was $78.7 billion in 2021, up a staggering 91%. These operating profits have had a direct impact on the company's cash flow, and Alphabet has wasted no time deploying these profits into future growth drivers.

So far in 2022, Alphabet has announced two meaningful acquisitions, both in the cloud cybersecurity space. Most recently, the company announced its proposed takeover of Mandiant for $5.4 billion. This deal is particularly interesting because the company stated that Mandiant's products and services will be layered into Alphabet's existing cloud offering, Google Cloud Platform. In 2021, Google Cloud generated $19.2 billion of revenue, but it remains unprofitable as this division lost nearly $3.1 billion. 

Investors should be encouraged that Alphabet's leadership has identified and is actively pursuing future growth catalysts that can be integrated into existing business segments. As investments in digital transformation, and the cloud market more broadly, begin to take shape, Alphabet is well-positioned to benefit from these tailwinds and grow an already impressive business to even bigger heights. 

Identify your investment profile

It is important to remember the time spent in the market is more important than trying to specifically time the market. When it comes to stock splits, there are many different strategies that can result in lucrative profits depending on how you invest. We can see that investors who owned stock in Alphabet's big tech cohorts typically performed better in the long run when compared to investors with short holding time frames.

Between impressive top-line growth, expanding profit margins, and strategic investments in future growth catalyst, Alphabet has given investors several reasons to buy the stock now, before the split, as opposed to waiting until after when the shares appear less expensive but are basically the same. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you buy Alphabet before the stock split? appeared first on The Motley Fool Australia.

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Adam Spatacco owns Alphabet (A shares), Amazon, Apple, Nvidia, and Tesla. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, Nvidia, Shopify, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long January 2023 $1,140 calls on Shopify, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Enterprises are increasingly relying on data to drive business decisions. One of the most critical components of data synthesis and aggregation is cloud computing, a form of server virtualization to deliver infrastructure-as-a-service (IaaS). Instead of investing heavily into capital expenditures in the form of physical servers, cloud providers allow customers more scalability because enterprises are essentially outsourcing active management of data aggregation and server maintenance. According to Gartner, the public cloud market is dominated by Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), and Amazon is emerging as the leader. Does that positioning merit an investment in the web giant right now?

AWS has proven tough to beat

Through the first nine months of 2021, Amazon's cloud segment, Amazon Web Services (AWS), generated $44.4 billion of revenue while operating at a 30% margin. For one point of comparison, Google Cloud contributed $13.7 billion of revenue for the first nine months of 2021 and is unprofitable, as it reported a loss of $2.2 billion.

What's even more staggering is the pace of AWS's growth. During Q3 2021, AWS generated $16.1 billion of revenue, which represented 39% year-over-year growth. Investors can see that the quarterly operating income of $4.9 billion for the AWS segment was more than Amazon's entire business combined. Amazon Web Services is arguably becoming the most important pillar of the company's ecosystem.

Despite the impressive growth of AWS and the operating leverage it's providing Amazon's business, investors may find it curious that Amazon stock has remained relatively flat over the last 12 months. Competing cloud providers Microsoft and Google witnessed 42% and 52% stock price increases over the last 12 months, compared to Amazon's 0.10%.

Ambitions beyond the cloud

Amazon has been able to reinvest the profits from its cloud business into other segments, as the company works to differentiate itself from other technology behemoths. One area that is quickly becoming an important crux of Amazon's business is digital advertising.

According to eMarketer, Amazon is expected to comprise 10.7% of the U.S. digital ad market in 2021 and grow to 12.8% by 2023. Although the uptick has been bolstered by increasing consumer reliance on digital shopping during the pandemic, one could argue that this theme will stick because Amazon's platform makes it more time-efficient and cost-effective for consumers to make purchases online versus going to a physical retail location.

The boom on the digital ad side of its business could serve as another lucrative catalyst for the company as it gains market share from Google and Meta Platforms. On the contrary, eMarketer predicts that Google's digital ad business in the U.S. is expected to decrease from 28.9% in 2020 to 26.6% in 2023. 

Amazon is well-positioned to benefit from enterprise investment in digital transformation. As the company gains market share over its competition, AWS's capital efficient margin profile will continue fueling additional growth drivers as the company looks to enter new industries.

When in doubt, zoom out

Investors and Wall Street analysts kept a close eye on Amazon during 2021 as the company significantly increased its operating expenses to combat pandemic-driven supply chain speed bumps. The effects of these increased expenses were most apparent in the company's Q3 2021 financials. For the quarter ended Sept. 30, 2021, Amazon reported operating margins of 1.3% and -3% for its North American and International e-commerce segments, respectively.

During times of economic uncertainty, it is important for investors to zoom out and look at the larger picture. Microsoft, Google, and Amazon all appear to be compelling investments, especially given many growth and technology stocks witnessed significant sell-offs during the final months of 2021 due to lingering concerns over inflation. Although Amazon's overall profitability profile has taken a hit due to challenges on the e-commerce side of the business, it could be argued that this is primarily a function of short-term headwinds related to wage inflation and supply chain. The growth in AWS has allowed the company to combat these near-term challenges given the strong operating profits it produces. Moreover, Amazon is able to reinvest some of these profits into other areas such as digital market, entertainment, and consumer electronics.

Amazon's business appears far more prolific than its competitors who are heavily reliant on singular products, namely hardware devices and advertising, which are also markets that Amazon competes in. As the company trades for three times trailing 12-month sales compared to Microsoft's 15 times and Alphabet's eight times, now may be a unique time for investors to consider Amazon before its next bull run. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Adam Spatacco owns Amazon, Microsoft, Alphabet, and Facebook. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Alphabet (C shares), Meta Platforms, Inc., and Microsoft and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Gartner and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.