Last night the Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) stock price sank 7.4%, vaporising around A$144 billion worth of market capitalisation. The debilitating fall followed a glaring error from the tech giant's recently announced AI service.

Investors were not forgiving after the mistake, erasing the equivalent value of CSL Limited (ASX: CSL) from the search engine provider. In turn, Alphabet shares finished the day at $100 neat — still 11.5% above their starting price this year.

It's a 'Bard' look as Bing brings the heat

The rapid adoption of ChatGPT has piqued the interest of tech giants, and Microsoft Inc (NASDAQ: MSFT) was quick to join forces with OpenAI — the maker of ChatGPT — announcing a partnership last month.

Clearly, Microsoft is not playing around with making the most of the deal, with the company integrating AI directly into its search engine, Bing.

Not one to be outdone, Google also revealed its own AI implementation in search dubbed Bard. Much like Bing, the feature is meant to allow searchers the ability to ask questions in a conversational manner and return results produced by AI.

However, one of the company's first displays of the technology has cast doubt on Bard's usefulness and accuracy. The hiccup has taken a significant toll on the Alphabet stock price in the aftermath.

In a demonstration shared via Twitter, Google queried Bard for James Webb Space Telescope (JWST) facts for a 9-year-old. Impressively, three various dot points of information are swiftly supplied. But, it was quickly ridiculed for serving up false information — sending the Alphabet stock reeling.

Contrary to the AI's statement, the JWST did not take the first image of a planet outside of our solar system. An accolade, instead, held by the European Southern Observatory's Very Large Telescope.

A headwind for Alphabet stock

The stumble by Alphabet leaves a level of uncertainty around the dependability of the company's honeypot, search.

If Microsoft's partnership with OpenAI is able to deliver a better search experience, this could put pressure on Alphabet's all-important ad revenue.

Over the past year, the Alphabet stock price has fallen nearly 30%. Meanwhile, Microsoft shares have slipped by 14.3%.

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It's not often anyone gets to outdo the legendary Warren Buffett at investing.

After all, Buffett has an unrivalled six-decade investing career, which he has used to build his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) from relative obscurity to the US$693 billion behemoth it is today. Giving himself a net worth of US$110 billion in the process, of course.

Yet, like all of us, Buffett is only human. As such, he does make mistakes from time to time. I'm sure one of his biggest mistakes was passing up on Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) stock. Alphabet is the US tech giant that owns Google.

It is one of the most successful companies of all time, giving investors a 3,270% return since its 2004 IPO (that's 17.2% per annum compounded).

Yet neither Buffett nor Berkshire owns this company. Nor has Buffett or Berkshire ever owned it.

Buffett never bought Alphabet stock. Should we?

Alphabet's Google is one of the most dominant companies on the planet. It has near-total dominance in the global search engine business, only ceding ground where it has been completely barred from participating in a market, as has happened with China.

But Google also dominates in other areas too. It owns the Android smartphone operating system, which is by far the most used system globally. Other Alphabet apps like Google Maps, Translate, and YouTube are also among the world's most popular.

Quite simply, Alphabet has one of the widest and deepest moats of any company anywhere. And yet Buffett, who coined the term 'moat' himself, has never owned it.

To be fair, some aspects of Alphabet's business would be hard for a nonagenarian to get their head around. And Buffett has come out before and waxed lyrical about his love of the company and regret in not buying it:

But even though Buffett has never bitten the bullet on Alphabet, that doesn't mean we can't. And right now might be the perfect time to consider an investment.

Be greedy when others are fearful

Alphabet stock has had a pretty shocking year. In early 2022, Alphabet's Class A stock hit a high of US$151.55. Today, it is going for just US$91.29, a fall of almost 40%:

This leaves the company on a pretty compelling valuation, in my view. One that hasn't happened for Alphabet in a decade.

At present, Alphabet's Class A stock has a price-to-earnings (P/E) ratio of 18.48. That means investors are being asked to pay $18.48 for every $1 of earnings.

By comparison, the ASX's Commonwealth Bank of Australia (ASX: CBA) has a P/E ratio of 19.7 right now. Woolworths Group Ltd (ASX: WOW) is sitting at a P/E ratio of 26.88.

Yes, by this metric, CBA and Woolies shares are more expensive than Alphabet stock. I know which company I would rather own for the next decade and beyond! So perhaps now is the time to do what Buffett did not, and buy Alphabet shares.

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Every so often, a company comes along and has so much success that many investors end up retiring millionaires by simply going along for the ride. Apple (NASDAQ: AAPL) is one of those companies. The tech giant has seen success matched by very few in history, and it has been rightfully earned. After all, it has world-class products, top-tier brand loyalty, and a bank account that other companies can only dream of having.

Past results are great, but a company's future outlook should be driving investing decisions. And although it's the largest public company in the world with a market cap of over $2.4 trillion -- more than Amazon, Berkshire Hathaway, and Tesla combined -- there's still room for noticeable growth for Apple.

Here's why it's a must-own for 2023.

Apple is just getting started in the finance industry

Apple first began its journey into the financial services space in 2014 with the announcement of Apple Pay, which allowed people to pay from their iPhones. However, this move was seen as more about convenience than Apple making its way into the space. Then came 2019 and the announcement of the Apple Card -- a sign Apple was clearly taking a step in that direction.

With the Apple Card, Apple relied on Goldman Sachs to approve applications and fund the loans, which is why when they announced Apple Pay Later -- their move into the buy now, pay later space -- it was no longer a mystery whether Apple was serious about becoming a player in the financial services industry. Apple Pay Later is the first time Apple is underwriting and funding loans by itself.

Apple has an advantage that no other financial institution can duplicate: Its iPhone is in more than 100 million hands in the US. Between the iPhone's world-class technology and the convenience it can provide, the company's play into the financial services space is bound to test even the most formidable of financial technology (fintech) competitors.

The iPhone still reigns supreme

The iPhone is arguably the greatest consumer product ever made; it has quite literally changed the world. Apple reportedly spent over $150 million developing the original iPhone, and to say they've reaped the returns on their investments would be the understatement of the century. In its 2022 fiscal year, Apple brought in $394.3 billion in revenue -- roughly $28.5 billion more than it did in 2021. The iPhone accounted for more than half of that, bringing in $205.4 billion.

The fact that the iPhone managed to increase its sales in a year defined by inflation not seen in decades is very telling of its power. In fact, this year was the first time ever that more people in the US used an iPhone than an Android phone. That's a remarkable milestone when you consider the iPhone's market share growth and much higher price point.

As long as the iPhone is padding Apple's bottom line, there's no reason to believe it won't continue to be one of the biggest cash cows you'll see from any business in any industry.

Apple is ramping up its research and development

Apple has historically spent a smaller portion of its revenue on research and development (R&D) than its other Big Tech competitors like Alphabet and Amazon. In 2020, here's how much the three companies spent on R&D and the percentage that was of their net sales:

• Alphabet: $27.6 billion (15%)
• Amazon: $42.7 billion (11%)
• Apple: $18.8 billion (7%)

In 2021, Apple's R&D budget increased to $21.9 billion, and in 2022, it jumped up to $26.2 billion -- a company record. Although this still represents a relatively low percentage of Apple's revenue, it's a sign the company isn't getting complacent and is putting more emphasis on taking advantage of potential growth opportunities.

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

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As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023?

Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

The indexes are highly concentrated on the top

At the top, the indexes have a lot of overlap.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

As you can see, Apple, Microsoft, Amazon, and Alphabet make up a considerable chunk of these indexes. In the S&P 500, they account for 19.83%. It's basically double for the Nasdaq-100, with that group making up 39.16% of the index. It's pretty straightforward: How these companies do will significantly steer how the overall index does.

While these three are tech-focused, they compete in different markets. Both Apple and Amazon are a good measure of the pulse of the consumer, as their sales are highly affected by consumer sentiment. If inflation cools, and consumers don't need to worry about rising grocery prices or housing costs, they may treat themselves to the latest device.

Alphabet and Microsoft are business-focused, but for different reasons. Alphabet's primary revenue stream is advertising, and many clients have pulled back their spending levels in 2022 due to the uncertain business environment. If the outlook improves, expect this revenue to return. Microsoft's cloud business and Office product suite indicate how willing businesses are to spend on their infrastructure, but Microsoft's consumer product division also indicates how individuals are doing. 

If the consumer gets stronger and business outlook improves, these four will boom. If that's the case, then the Nasdaq-100 will likely have a better year because it is concentrated in companies that will benefit the most. But if 2023 brings an economic recession, the S&P 500's diversity will help it to outperform the Nasdaq-100.

The companies outside the top five are very different

For the S&P 500, when you move out of the top five, the companies become much more diverse.

Data source: Slickcharts. Data as of Nov. 19.

Now, there are industrials, healthcare, and energy sectors represented, giving the index some much-needed balance. Looking at the top 20 reveals even more diversity, with financials, energy, and healthcare rounding the index out.

This is far from the case for the Nasdaq-100.

Data source: Slickcharts. Data as of November 19. Note: Both Alphabet class shares combined.

Besides Pepsi and Costco, these companies are more in the tech sector. But, unlike the S&P 500, it doesn't get much better outside the top 10, with most of the top 20 consisting of chipmakers, communication companies, and software businesses. Now, this probably isn't a surprise because the media often refers to this index as the "tech-heavy Nasdaq."

Still, tech businesses don't do well if the economy is struggling.

Does that mean you should write the Nasdaq-100 off? Absolutely not. Tech stocks tend to do very well in the recovery phases of a recession. Plus, the stock market is forward-looking, and stocks usually tend to do better during a recession than leading up to one.

That last tidbit of information should keep investors in the market, especially now with a recession, or at least an economic slowdown, imminent. However, if you're trying to decide which index to buy, you need to utilize the 2023 outlook. If you think 2023 will be a repeat of 2022, then the S&P 500 is the better choice. On the other hand, if you believe the economy will begin to recover and the Federal Reserve eases its interest rate hikes, then the Nasdaq-100 is the place to be.

One last point: There's nothing wrong with owning both indexes if you don't know what 2023 will bring. Personally, I think this is an intelligent strategy, as it gives investors the upside of recovery and the safety of a balanced investment.

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

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What happened

FAANG stocks Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and Netflix (NASDAQ: NFLX) jumped today after the October Consumer Price Index report showed inflation cooling off faster than expected.

According to the Bureau of Labor Statistics, consumer prices jumped 7.7% year over year in October, below expectations of 7.9%, and the October reading marked the slowest year-over-year growth rates since January. On a monthly basis, inflation was up 0.4%, below expectations of 0.6%.

Core inflation, which excludes more-volatile food and energy prices, was also lower than expected, rising just 0.3% from September and 6.3% over the last year.

The news makes it more likely that the Federal Reserve will slow the pace of its interest rate hikes, leading Treasury yields to plunge while stocks rallied on the news. Rising interest rates make bonds more attractive by comparison, but falling rates tend to attract money out of bonds and into stocks. 

As of 11:20 a.m. ET on Thursday, Alphabet stock was up 7.1%, while Meta had gained 7.2%, and Netflix was 5.6% higher. At the same time, the Nasdaq had jumped 5.8%, and the 10-year Treasury yield fell 7.5% to 3.85%, its lowest point in a month. 

So what

All three of these FAANG stocks are sensitive to consumer spending and, therefore, inflation and interest rates. They also make much of their money from outside the U.S., and falling Treasury yields weakened the dollar, which fell 2% against a basket of currencies this morning.

Alphabet stock has dropped sharply over the past year on concerns over a slowing economy and possible recession. The business' performance has taken a hit from macroeconomic headwinds, with revenue growth slowing to just 6% in its third quarter, or 11% in constant currency.

Advertising is a cyclical business, and it's generally one of the first expenses that businesses pull back on when they sense that demand is slowing or they need to cut costs. With inflation falling faster than expected, the bottom of the economic cycle could arrive sooner than investors had thought, which would be good news for Alphabet's Google since it's the leading digital advertising business.

Facebook parent Meta Platforms has faced similar headwinds, with its revenue shrinking in its most recent quarter. The company noted macroeconomic challenges in its most recent earnings report, but competition from TikTok, as well as Apple's ad-targeting restrictions, are also impacting its growth.

In a clear sign of the challenges the company faces, yesterday it laid off 11,000 employees, or 13% of its workforce. Meta has also been spending aggressively on its metaverse project, and investors might be more permissive of that spending if they believe interest rates will soon peak, since the cost of losing that money, measured by the net present value, goes up as interest rates increase.

Lastly, Netflix is a consumer-driven business whose subscription model makes it less sensitive to the macro-level economy than consumer discretionary companies that depend on one-time purchases, like restaurants and travel busineses. However, competition has increased significantly in video streaming, and higher prices are likely to cause some consumers to reconsider their streaming budget.

Netflix also has $14 billion in debt, some of which it's likely to roll over in the coming years, so lower interest rates are to its advantage there. It's also launching its advertising tier this month, and a recession could hurt momentum in that new business.

Now what

Of the three of these stocks, Alphabet seems the most sensitive to the macro climate as the digital advertising leader, and its performance -- especially for Google Search -- is something of a bellwether for the overall economy.

Meta is currently struggling with cash burn from its metaverse project and competition in its ad business. But the stock has become so cheap that a shift in market sentiment would give it some much-needed momentum to recover. 

And Netflix's future will mostly be determined by the success of its new ad tier and its ability to win against a wide range of streaming options. But the stock would still be better off if the global economy can avoid a recession.

All three stocks should benefit if inflation continues to cool off, but Meta and Netflix face more-immediate challenges that investors will be watching closely.

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

The post Why FAANG stocks were soaring today appeared first on The Motley Fool Australia.

Shares of Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) moved in opposite directions after their latest earnings reports. Apple's stock jumped nearly 8% on Oct. 28 after it soundly beat Wall Street's expectations, but Alphabet's stock tumbled 9% on Oct. 26 after it broadly missed analysts' expectations on both the top and bottom lines.

Apple's stock has still declined 12% this year as of this writing, but Alphabet fared much worse with a 34% drop. Let's see why Apple outperformed Alphabet by such a wide margin and if it will remain the better bear market buy.  

The key differences between Apple and Alphabet

Apple generated 79% of its revenue in its latest quarter by selling iPhones, iPads, Macs, and other hardware products and accessories. The remaining 21% came from its Services business, which houses its App Store and subscription-based services. It ended fiscal 2022 (which ended in September) with over 900 million subscribers across all of its services.

Alphabet generated 79% of its revenue in its latest quarter from Google's advertising business, which houses the ads from its core search engine, its advertising network, and YouTube. The rest of Alphabet's revenue came from Google's Cloud platform (10% of its revenues), its subscription-based services, hardware products, and other smaller businesses.

Apple's hardware business faced supply chain constraints throughout the first nine months of fiscal 2022, but that pressure eased in the fourth quarter. It was also affected by intermittent COVID-19 lockdowns in China, but its sales in the Greater China area (19% of its fiscal 2022 revenue) still increased nearly 9% for the full year.  

Alphabet's main challenge is the slowdown of the digital advertising market. Its ad sales had recovered quickly from the pandemic in 2021, but inflation, rising rates, and other macro headwinds all caused companies to buy fewer ads this year. YouTube, which suffered its first year-over-year revenue decline last quarter, also struggled to keep pace with ByteDance's TikTok in the short video market. Google's Cloud business continued to grow, but it couldn't fully offset its slower ad sales.

Which tech giant is growing faster?

Apple's revenue rose 33% to $365.8 billion in fiscal 2021, driven by robust sales of the iPhone 12 (its first family of 5G devices), while its EPS surged 71%. Its growth cooled off in fiscal 2022 as it lapped those 5G upgrades and it faced persistent supply chain headwinds, but its revenue still increased 8% to $394.3 billion as its EPS rose 9%. Analysts expect its revenue and earnings to grow 4% and 5%, respectively, this year.

Those growth rates might not seem impressive, but they don't factor in any new devices -- including its long-rumored AR (augmented reality) headsets -- or services that Apple might launch in 2023. Apple ended fiscal 2022 with $169 billion in cash and marketable securities, so it could still easily expand into new markets with big investments and acquisitions.  

Alphabet's revenue rose 41% to $257.6 billion in 2021 as its advertising business posted a strong post-pandemic recovery. Its EPS also increased a whopping 91%. But in the first nine months of 2022, its revenue only grew 13% year over year to $206.8 billion (and decelerated throughout all three quarters) as its EPS declined 14%. Analysts expect its revenue to rise 10% this year but for its earnings to decrease 15%.

That slowdown can be entirely attributed to the market's softening demand for digital ads. Its overseas revenues are also being gobbled up by a strong dollar, which could continue to strengthen as interest rates continue to rise. Nevertheless, analysts expect Alphabet's revenue and earnings to grow 9% and 14%, respectively, as some of those headwinds dissipate.

Alphabet ended the third quarter with $22 billion in cash and equivalents, which also gives it ample room for fresh investments and acquisitions. But for now, Alphabet plans to rein in its spending until its core advertising business recovers.

The valuations and verdict

Apple's stock outperformed Alphabet's this year because its core business seemed more resistant to the macro headwinds. But at 24 times forward earnings, Apple's stock looks a bit pricey relative to its near-term growth. Alphabet trades at just 17 times forward earnings, but that lower valuation suggests that investors aren't too optimistic about its future. 

I own both of these stocks, and I think they're still great long-term investments. But if I had to buy more shares of one of these stocks right now, I'd pick Apple instead of Alphabet because its near-term growth is more predictable, it's better insulated from the macroeconomic headwinds, and it's widely expected to roll out new products and services -- which the market probably hasn't fully priced in yet -- in 2023 and beyond. Alphabet's stock might seem cheaper, but it probably won't command a higher valuation until the broader digital advertising market recovers. 

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

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But the Vanguard International Shares ETF is also one of the most diversified funds available, with close to 1,500 individual shares within its underlying investment portfolio. So how can investors know whether this extremely wide fund is a good investment, containing high-quality companies?

Well, let's have a look at how it is actually structured.

How is the Vanguard International Shares ETF built?

So although the Vanguard International Shares ETF holds close to 1,500 different companies, it is actually a very top-heavy ETF. As it turns out, its top five holdings alone account for approximately 15% of the ETF's entire portfolio by weighting.

Let's examine the largest companies in the Vanguard International Shares ETF and see what kind of quality we are getting here

The fund's top holding is Apple Inc (NASDAQ: AAPL), a company that needs little introduction. For one, it's hardly debatable that Apple has one of the strongest brands in the world. But the company can also boast a very stable financial position.

Apple started paying a consistent dividend back in 2012 and has increased its dividend every single year since. Even so, it is still only paying out 14.7% of its earnings as dividends today. That indicates immense financial strength to me.

The next holding in the Vanguard International Shares ETF is Microsoft Corporation (NASDAQ: MSFT), another company that most investors would know well. Chances are most of us use a Microsoft product or service every day, which is a good start.

But Microsoft also has a formidable financial position. This company has a much-envied 17-year streak of growing its annual dividends. It has a higher, but still impressive, dividend payout ratio of 27.4% of earnings today.

More quality companies?

The Vanguard International Shares ETF's next three top holdings are Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon.com Inc (NASDAQ: AMZN), and Tesla Inc (NASDAQ: TSLA).

Here's where things get interesting. Unlike Microsoft and Apple, these companies do not pay dividends at present.

So both Alphabet (parent company of Google) and Amazon shares have had a rough time of late, thanks largely to disappointing earning reports.

However, in Alphabet's case, the company still reported US$69.1 billion in revenue and US$13.9 billion in net income. For the quarter. It also announced that it still has US$116 billion in cash, cash equivalents, and marketable securities on its balance sheet. With almost absolute dominance in the global search market, it's hard to argue that Alphabet isn't still a top-tier company.

Turning to Amazon, this company reported US$127.1 billion in net sales for the quarter, which was up 15% year on year. Amazon is also a household name with a formidable scale and brand. The fact it can still grow its revenue by double digits when it is at 12 figures is enough to call it a quality company in my view.

Tesla might be the most divisive name in the Vanguard International Shares ETF's portfolio. But there's no denying the fact that it is the world leader in electric vehicle manufacturing and battery technology.

Its rise to become one of the largest companies in the world in only a few years is also almost unprecedented. Yet this is a company that still reckons it will increase its production rate by 50% this year.

So, all in all, I think the top five companies in the Vanguard International Shares ETF are of the highest quality. You don't climb to the top of the global companies pile with mediocrity after all.

The post Does the Vanguard International Shares ETF contain 'good' quality companies? appeared first on The Motley Fool Australia.

Earnings disappointments tend to bring not only stock selling but also longer-term doubts about a stock. And investors learned from Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) recent third-quarter earnings report that even mega caps are not immune from such negative sentiment.

Nonetheless, doubts about stocks like Alphabet should serve as a reminder to look at a company more closely. Do the concerns about Alphabet mean investors should close positions or buy shares at the new, lower price? 

Alphabet's third-quarter earnings

Admittedly, this earnings report is one both shareholders and the company will want to forget. Third-quarter revenue of $69.1 billion fell slightly short of the $70.6 billion forecast by analysts. Also, the $13.9 billion net income, or $1.06 per share, came in well below the $1.25 per share consensus.

Additionally, both YouTube and the Google Network experienced a revenue decline of around 2% over the last 12 months. Amid these swoons, overall ad revenue rose by 3%, and company revenue increased by 6% over the same period.

Still, this lags behind the 41% yearly revenue growth reported in the third quarter of 2021. Not surprisingly, the stock price dropped following the news. The latest decline means the stock has fallen by about 30% over the last 12 months.

What to make of the report

Alphabet described the business climate as "uncertain" on the earnings call and, indeed, no investor should characterize the results as good news.

However, the situation also calls for some perspective. First, ad-market competitors such as Meta Platforms have experienced the same sluggishness in the ad market. This confirms the uncertainty Alphabet mentioned on the earnings call.

Moreover, Alphabet recognized years ago that it needed to develop sources of revenue outside of advertising. To that end, it bought numerous companies in various parts of tech. This includes Calico and Verily Life Sciences in the biotech fields, autonomous car company Waymo, artificial intelligence company DeepMind, and numerous others.

Admittedly, investors may be frustrated that the company does not generally release financials for these segments. One might also think the diversification away from advertising has moved too slowly. In the third quarter of 2015, advertising claimed 90% of Alphabet's revenue. By the third quarter of 2022, it had only fallen to 79%.

Still, one of the few non-ad segments it reports, Google Cloud, made up 10% of company revenue in Q3. Additionally, Google Cloud revenue grew 38% year over year, so that portion will likely continue to increase.

Don't forget a key fundamental

Investors also need to remember Alphabet's ace in the hole: liquidity. At the end of Q3, the company reported more than $116 billion in cash, cash equivalents, and marketable securities.

That has fallen from about $140 billion at the end of last year. Still, it leaves the company with considerable resources to find new revenue resources without having to incur rising borrowing costs.

Also, Alphabet has generated $44 billion in free cash flow in the first nine months of the year. That slightly decreased from the $48 billion in the first three quarters of 2021. Nonetheless, it leaves Alphabet in a strong cash position that can ensure the company's future.

The state of Alphabet

The third-quarter earnings report does little to change Alphabet's value proposition. Admittedly, headwinds in the digital ad market have finally caught up with Google. However, the slowing growth likely speaks to the economic cycle more than Alphabet. That leaves room for recovery as conditions improve.

Moreover, the success of Google Cloud has reduced Alphabet's dependence on ads. Alphabet's tech businesses, massive liquidity position, and free cash flow could further diversify revenue sources over time. Thus, investors probably want to look at this report as a buying opportunity for the communications stock rather than a cause for panic.

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

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While tech stocks were hammered in 2022, the cloud computing industry barreled along at an impressive growth rate. According to research firm Gartner, the public cloud sector alone is estimated to grow 20% this year.

This amounts to nearly half a trillion dollars in 2022. Just a decade ago, global public cloud computing revenue was a mere $26.4 billion.

Given the cloud industry's rapid expansion, competitors abound. Among the bigger players are tech giants IBM (NYSE: IBM) and Google Cloud, owned by Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

Both are seeing strong growth in their respective cloud businesses. But if you had to choose between the two, which company offers the better investment opportunity? Let's dig into each to arrive at an answer.

IBM's cloud strategy

IBM spent the past few years reinventing itself into a hybrid cloud-focused company. In a hybrid cloud implementation, a business employs both public and private clouds, using the former to perform basic IT infrastructure tasks, such as hosting a corporate website, and the latter to secure confidential or critical data, including financial and customer records.

IBM was smart to focus on this area. The hybrid cloud market is forecasted to grow from $85.3 billion last year to $262.4 billion by 2027.

In addition, IBM's impressive list of enterprise clients is an ideal fit for hybrid cloud solutions. Big Blue's customers include the top ten banks, governments, and healthcare companies in the world. These industries need the security of a private cloud while capturing the cost savings of a public one.

IBM's hybrid cloud strategy proved successful. In its third-quarter earnings report, IBM generated revenue of $14.1 billion, a 6% increase over 2021. This is the third consecutive quarter of year-over-year revenue growth despite macroeconomic headwinds, such as a strong U.S. dollar.

Big Blue also offers an attractive dividend, yielding about 4.8% at the time of this writing. The company can maintain this robust dividend thanks to its free cash flow (FCF). IBM expects to hit $10 billion in FCF this year, while dividend payments totaled about $6 billion over the trailing 12 months.

IBM has a strong dividend track record, paying consecutive quarterly dividends since 1916. It also raised its dividend in April, marking 27 consecutive years of dividend increases.

Alphabet's Google Cloud approach

Alphabet is building its Google Cloud business in the same way it generated success for its famed Google search engine: by prioritizing customer acquisition and revenue growth over profitability.

That's why Google Cloud is currently unprofitable, exiting the third quarter with an operating loss of $699 million. But its business is growing rapidly. In just three quarters this year, Google Cloud's sales nearly matched all of 2021's income, continuing a multi-year streak of rising revenue.

Data source: Alphabet. YOY = year-over-year.

Google Cloud comprised only about 10% of Alphabet's Q3 revenue, but it's already ranked the third-biggest cloud computing company behind industry leaders Amazon and Microsoft. And Alphabet continues to aggressively invest in Google Cloud despite closing down other bets such as its Stadia video games division.

For instance, Alphabet acquired cybersecurity firm Mandiant in September for $5.4 billion, marking one of the company's biggest acquisitions in its history. Mandiant will boost Google Cloud's security in a world where remote workers grew from 23% of the American workforce before the coronavirus pandemic to nearly 60% in 2022.

Is IBM or Alphabet the better investment?

Both IBM and Alphabet have proven successful in their cloud endeavors, so investing in either is worthwhile. After all, the cloud computing industry is forecasted to grow from $706.6 billion last year to $1.3 trillion by 2025.

But if I had to choose one of these cloud computing companies to invest in, I would lean toward Alphabet despite IBM's success and attractive dividend.

Google Cloud's revenue is already edging past Big Blue. IBM's hybrid cloud revenue over the past 12 months totaled $22.2 billion. Google Cloud's revenue was $24.5 billion over the same time period.

Granted, Google Cloud's success can be overshadowed by Alphabet's digital advertising business, which accounted for $54.5 billion of its $69.1 billion in Q3 revenue. And the advertising industry is experiencing a downturn this year, leading Alphabet's Q3 ad revenue to increase just 2.5% year-over-year.

But Alphabet's ad business helps fund Google Cloud. Alphabet generated $63 billion in FCF over the past 12 months, while IBM expects to achieve a cumulative FCF total of $35 billion across three years, from 2022 to 2024.

Also, Alphabet possesses several factors, along with Google Cloud, that make the company an alluring investment, including its dominance in search advertising. Alphabet increased revenue 41% year-over-year in 2021, and its revenue continues to grow this year, reaching $206.8 billion over three quarters compared to $182.3 billion last year.

Google Cloud's strong growth, Alphabet's hefty FCF, and the company's other areas of strength provide compelling reasons to make Alphabet the better choice for an investment in the rapidly rising cloud computing industry. 

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

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Bear markets can often feel like doomsday events for investors, but there's good that comes out of these healthy downturns. Bear markets separate the wheat from the chaff.

In other words, they make apparent the companies that are worthy of investor dollars, as well as those that probably should have never gone public in the first place.

There's one very distinguishable trait that nearly all bear market winners have in common: Healthy cash levels on their balance sheets.

Having a lot of cash allows strong companies to take advantage of cheap valuations in the form of acquisitions.

While cash-poor companies struggle to keep their boats afloat, those with strong balance sheets can bolster their businesses by buying out their competitors or acquiring entire new product lines.

How to identify a cash-rich balance sheet

If diving deep into financial statements isn't your thing, then you're in luck, because identifying a strong cash position is very easy.

Simply add the cash and cash equivalents and short-term investments/securities lines on the balance sheet, and you'll arrive at the company's total cash.

Comparing this number to the current liabilities (expenses the company will pay in the next 12 months) gives you a good idea of how cash-rich the business is.

Take Shopify (NYSE: SHOP), for example. The company has nearly $7 billion in cash and only $700 million in current liabilities. Not only does that tell us the company is more than capable of self-funding its operations, it also has plenty of cash to deploy in this bear market.

Winners from past bear markets

Some of the most prolific and profitable companies today were built on tremendous acquisitions made when the market was selling off.

Had these companies not had adequate cash reserves during these periods, they would likely not be nearly as prominent as they are today.

Let's take a look at some examples:

Data source: Public company filings and box office data. Table by author. * Does not account for revenue from Disney Plus subscribers.

In the wake of the Great Financial Crisis, Disney made one of the most important acquisitions in film history, buying up a relatively obscure comic book company called Marvel. As we all know now, the Marvel Cinematic Universe is one of the world's most successful franchises, bringing in a whopping $2.8 billion in annual revenue for Disney.

That number is pretty astounding, considering the company only paid $4 billion to acquire Marvel. And the real annual revenue is likely much higher, since it's difficult to estimate how much of Disney's streaming revenue is due to its Marvel titles.

If the Marvel acquisition looks impressive, then the YouTube and Instagram buyouts are downright silly. Alphabet paid just $1.65 billion for YouTube in the years following the dot-com bubble, and today it accounts for $28 billion in revenue for the Google parent company.

Meta (at the time Facebook) might have made the greatest acquisition of all time when it bought Instagram for a ridiculously cheap price of $1 billion in 2012. Today, Instagram accounts for roughly 44% of Meta's total revenue. To call this acquisition a home run would be the understatement of the century.

All three companies owe a meaningful amount of their success to the high-quality acquisitions made in past down markets.

Cash-rich companies are uniquely positioned to prosper in recoveries

The examples above highlight just how important it is to have cash in bear markets. An abundance of capital not only protects the business from bankruptcy, it gives the company the ability to buy up cheap assets to strengthen its competitive advantages.

Very few acquisitions will be as dramatically important as the examples above, but the discounts created by bear markets can turn average buyouts into meaningful sources of revenue and income in the future.

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

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Coming into Alphabet Inc's (NASDAQ: GOOG) (NASDAQ: GOOGL) third-quarter earnings report on Tuesday night, there were already signs that growth would be sluggish.

Fellow digital advertising stock Snap Inc said revenue growth slowed to just 6% in its third quarter, and Alphabet management had already warned about macroeconomic uncertainty in its second-quarter earnings report.

Those fears were validated when the Google parent posted third-quarter results that were even worse than expected.  

Revenue increased just 6%, or 11% in constant currency, to $69.1 billion and ultimately missed estimates at $70.6 billion. On the bottom line, operating income fell 19% to $17.1 billion, and earnings per share shrank from $1.40 in the quarter a year ago to $1.06 (below the analyst consensus of $1.25). The stock fell 6.6% in the after-hours session on Tuesday night. 

Advertising screeches to a halt

While Google Cloud and the projects in the "other bets" segment, like the autonomous driving service Waymo, get some attention from investors, Alphabet is fundamentally an advertising business, and advertising makes up essentially all of its profits, as Google Cloud and other bets lose billions of dollars each year.

Google Search still drives a majority of the company's revenue and profits, making it the biggest determinant of the company's success.

In the third quarter, revenue from the search segment increased just 4.3% to $39.5 billion, while YouTube's top line fell for the first time since the company broke out its results, declining 2% to just over $7 billion. Revenue at Google Network, which is made up of Google ads on non-Google properties, also fell 1.6% to $7.9 billion.

Management noted that the stronger dollar was partly responsible for the weak growth and said that lapping rapid growth in the quarter a year ago when overall revenue jumped 41% was the main reason for the underwhelming performance.

However, Alphabet's overall revenue also declined sequentially, and advertising revenue slipped 3.2% from Q2 to $54.5 billion, a clearer sign that macroeconomic headwinds are weighing on the business.

On the earnings call, the company said it saw a pullback in verticals, including financial services like insurance, loans, and crypto, and that negative trends in ad demand strengthened from the second quarter to the third quarter.

Is this a red flag?

Advertising is a cyclical business, and in uncertain economic environments like the current one, it's often one of the first expenses that businesses cut back on, which makes sense. Companies anticipating a decline in consumer spending are likely to cut back on marketing, and digital advertising in particular can be easily ramped up or down according to demand. Cutting ad budgets also doesn't come with the baggage that laying off employees or slashing capital expenditures does.

Alphabet management seems to expect the headwinds to get worse before they get better. The company doesn't give guidance, but it said it expects stronger currency headwinds in the fourth quarter and plans to slow spending growth in the fourth quarter and in 2023, which should help shore up the profit decline.

After headcount jumped 25% to 187,000 year over year in the third quarter, CEO Sundar Pichai promised that employee additions would be significantly slower in the fourth quarter and in 2023. In Q4, the company plans to add less than half the new employees it did in Q3.

As a public company, Alphabet has been through two advertising cycles before. Both times, in the financial crisis and the coronavirus pandemic, advertising growth fell sharply but quickly rebounded as the economic climate improved, and that should be the case again. 

Google's advertising products are essential tools for a wide range of businesses, and it has a near monopoly on search, with around 90% in market share in the countries where it operates. Despite the decelerating growth, this is not a broken business by any means. 

Investors should expect slow growth over the next few quarters, as ad demand is likely to be weak, but Alphabet's strengths are still intact. Furthermore, the stock is reasonably priced at a price-to-earnings ratio of roughly 20 based on this year's estimates.

If the bear market persists, the stock could decline further, but for a dominant business and a profit machine, this isn't a bad entry point at all.

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

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What happened

Cryptocurrencies continued their ascent this morning, as bond yields dropped and investors got more optimistic about the trajectory of interest rates. There has also been an apparent short squeeze this week for several prominent cryptocurrencies.

Over the last 24 hours, the prices of Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) had all made significant gains.

The price of Bitcoin traded roughly 6.6% higher and hovered around $20,777 as of 10:26 a.m. ET today. The price of Ethereum traded roughly 13.4% higher, and the price of Dogecoin was up 10.4%.

So what

Cryptocurrencies have been crushed all year long because of the Federal Reserve's aggressive interest rate hikes, which have led to surging bond yields as well.

But this week, bond yields have receded some, with the yield on the 10-year U.S. Treasury bill coming down from above 4.2 percentage points earlier this week to just above 4 percentage points as of this writing.

That has buoyed stocks and cryptocurrencies, as investors get hopeful that perhaps the bulk of the Fed's rate hikes will soon be at an end. 

But in other news, there have been reports of a big short squeeze that has driven the recent gains of Bitcoin and Ethereum. CoinDesk reported that major exchanges have seen some of the largest liquidations of short positions since the middle of 2021.

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

The post Why are Bitcoin, Ethereum, and Dogecoin leaping higher today? appeared first on The Motley Fool Australia.

What happened

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), the world leader in online advertising, released its third-quarter financial report after the market closed Tuesday, and the results were disappointing. Furthermore, these results were seen as a harbinger of what's to come for the rest of the digital advertising industry.

As a result, many adtech and digital advertising stocks fell in sympathy on Wednesday, as investors considered what was to come. Shares of The Trade Desk (NASDAQ: TTD) and Meta Platforms (NASDAQ: META) slumped as much as 8.1% and 5.5%, respectively, while Amazon (NASDAQ: AMZN) and Roku (NASDAQ: ROKU) had fallen as much as 4.8% and 3.9% respectively. As of 1:59 p.m. ET, the quartet was down 3.9%, 5.1%, 3.9%, and 2.9%, respectively.

This sell-off was broad based, taking down a wide variety of companies that rely on digital advertising for their livelihood. Earlier this year, Google's ad revenue seemed largely immune to the recessionary fears that gripped much of Wall Street. It's well documented that advertising is among the first items in corporate budgets to be slashed in times of economic uncertainty, and it seems that reality has finally caught up with the digital advertising kingpin.

So what

In the third quarter, Alphabet reported revenue of $69.1 billion, which grew just 6% year over year. Foreign currency headwinds played a part, as revenue would have been up 11% in constant currency. For context, revenue in the prior-year quarter grew by 41%.

The pressure on the top line also dented profits, as earnings per share (EPS) of $1.06 declined 24%. Analysts' consensus estimates had called for revenue of $71 billion and EPS of $1.26, so Alphabet failed to clear either bar.      

However, commentary by the company sent investors running for the exits, as management detailed several factors that will weigh on results for the coming quarter. Alphabet cited tough comps, worsening foreign exchange headwinds, and lower ad spending as companies shore up their financial positions in the face of growing economic uncertainty.

As a result of the disappointing results, analysts issued a flurry of price target reductions, with no fewer than 14 of Wall Street's finest cutting their expectations. JMP Securities analyst Andrew Boone seemed to capture the prevailing mood, saying the results were a warning sign that digital advertising this quarter will likely be weaker than originally imagined. 

Bernstein analyst Mark Shmulik echoed those sentiments, writing, "Google is an ad business first, and digital ads [are] no longer a safe place to hide."  

Now what

Alphabet's results seemed to suggest the writing is on the wall for the rest of the digital advertising and adtech space. That said, investors shouldn't be too quick to jump ship but rather assess the potential for each of these companies on their own merit.

Meta Platforms leads the social media space and is widely regarded as the other company in the Google/Facebook duopoly that dominates much of the digital advertising space. Given the similarities in their business models and Meta's reliance on digital advertising for more than 97% of its revenue and all of its profits, the comparison is an appropriate one. After that, however, the contrasts become more pronounced.

Amazon derives the lion's share of its revenue from e-commerce and cloud computing, though in recent years, digital advertising has been one of the company's fastest-growing businesses. Amazon's advertising services revenue grew 20% so far this year but still represents just 7% of the company's total revenue, so the sell-off in this case is likely related to the state of the broader economy and the potential to slow growth in its e-commerce and cloud segments.

Roku is an interesting one. Investors inexorably link the company with its namesake streaming devices, but many are unaware that Roku derives the majority of its revenue from the digital advertising that appears on its streaming video platform. Alphabet said that digital ads on YouTube, the company's streaming platform, declined 2% year over year, the first such decline since Alphabet began reporting the platform's results in 2019. This could spell trouble for Roku in the coming quarters.  

Finally, there's The Trade Desk. The company's adtech platform places digital ads across a wide spectrum of online locations, acting as a go-between for some of the world's largest ad agencies.

When The Trade Desk released its second-quarter report in early August, the results were surprisingly robust. Revenue grew 35% year over year, while adjusted EPS climbed 11%. At the time, CEO Jeff Green made a startling pronouncement, saying (emphasis mine), "This trend also gives us confidence that we will continue to gain market share in any market environment."  

The Trade Desk is seen as a striking alternative to advertising in the walled gardens offered by Google, Facebook, and Amazon. It also has one of the highest valuations, a function of its consistently strong results and entrenched position in the industry. While the stock may yet feel the impact of the economic downturn, The Trade Desk is still my top pick among these digital advertising and adtech stocks. 

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

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What happened

Shares of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) turned sharply lower on Wednesday, falling by  9.14%.

The catalyst that sent the tech giant lower was its third-quarter earnings report, which suggested the economy is worse than some feared.

So what

Alphabet generated revenue of $69 billion, up 6% year over year (up 11% in constant currency), as foreign currency headwinds ate into its results. Its operating margin continued the decline that began earlier this year, falling to 25% compared to 32% in the prior-year quarter. The bottom line showed the strain of the beleaguered economy as diluted earnings per share (EPS) of $1.06 slumped 24%.

To give some context to that performance, analysts' consensus estimates were calling for revenue of $71 billion and EPS of $1.26, so Alphabet missed expectations on both counts.

In the face of macroeconomic headwinds, Google Cloud held up relatively well, growing 38% year over year, bringing its run rate to nearly $27.5 billion. But the big story was a marked deceleration in Google's digital ad revenue, which grew just 2.5%.

Ad spending on YouTube exhibited the most noticeable change, as revenue declined to $7.07 billion, down 2% year over year and missing analysts' expectations of $7.42. This marks the first time YouTube's ad revenue declined year over year since Alphabet began breaking out the segment's results in 2019.

On the conference call to discuss the results, CFO Ruth Porat blamed the decelerating growth on "further pullbacks in advertiser spend," a phrase that sent a shiver through the digital advertising and ad-tech spaces.

Now what

Heading into the fourth quarter, Alphabet executives warned that the company was "lapping the outsized growth in 2021," resulting in tough comps, while simultaneously facing "larger" foreign exchange headwinds and a pullback in ad spending.

Over the long term, its industry-leading position in digital advertising makes Alphabet stock a buy -- particularly on any weakness -- but investors should buckle in for a bumpy ride over the next few quarters. 

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

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1) Overnight Tuesday, Wall Street rose for a third straight day on a combination of strong corporate earnings and falling bond yields. Excerpt from Bloomberg…

Investors still expect the Fed to raise rates by three-quarters of a percentage point during its meeting next week. But recent economic data is already showing that Fed tightening has started to weigh on the US economy, leading investors to speculate that the central bank may be approaching the end of its aggressive tightening campaign. This renewed expectation of less hawkishness from the Fed, as well as a better-than-expected earnings season so far, have pushed stocks higher in recent days.

2) Earnings from Coca-Cola and General Motors topped estimates. But the wheels fell off after the market close, with Google parent Alphabet missing earnings estimates and fellow tech-giant Microsoft reporting a disappointing revenue forecast.

In after-market trading, both the Alphabet share price and the Microsoft share price fell more than 6%.

It was only yesterday when I said "earnings risk" might usurp the risk of higher interest rates as the dominant driver of equity markets. 

Most of the heavy lifting has already been done on interest rates. Although there's a lag, the desired effect – a slowing of economic growth – is starting to show up in corporate results. If Alphabet and Microsoft are feeling it, you can bet your bottom dollar companies with much less of a competitive advantage will be paddling upstream.

This bear market rally may be about to run out of steam.

3) Turning to Australia, the ASX 200 is largely flat in afternoon trade, at first following Wall Street's lead higher, then falling back after Q3 headline inflation jumped to an annual rate of 7.3%, higher than expectations.

Naturally, Australian bond yields rose as talk of the RBA raising interest rates by 50 basis points on Melbourne Cup day came back into play. That said, according to the Australian Financial Review, interbank futures are implying only a 25% chance of the RBA hiking by 50 basis points. 

Markets have been hanging on the prospect of central banks slowing their rate of interest rate increases. For the time being, inflation is winning the battle, with equities, despite their recent bounce, coming a long second.

4) Speaking of earnings risk, one of today's victims is Codan Ltd (ASX: CDA), the company best known for its gold metal detectors.

The Codan share price is being taken to the woolshed today after it forecast a significant contraction in first-half sales at its dominant Minelab division. Here's what the company said:

Like many businesses we are operating under challenging market conditions, with geopolitical issues, a high inflationary environment and an increasing risk of global recession. The risk of declining sentiment may impact sales in the short term and management continues to monitor this risk closely.

The company expects sales for Minelab to be in the region of $75 to $80 million in the first half of FY23, compared to $138 million in the prior corresponding period. The reduction primarily relates to the disrupted nature of the African market, normalisation of sales as we transition to living with COVID…

Codan joins a long line of COVID beneficiaries – government stimulus in some African countries was seemingly spent on buying gold detectors – turned post-COVID flops. 

Codan shares are now down 80% from their June 2021 high. Ouch.

5) One of the other high profile COVID boom-to-bust stocks is Kogan.com Ltd (ASX:KGN). 

Unlike Codan, the Kogan share price is on the rise today despite reporting first-quarter gross sales falling 38.8%, cycling a quarter in the prior year that was heavily impacted by COVID-19 lockdown orders, a period when online retailers saw booming sales.

Investors today were buoyed by Kogan accelerating the sale of its final excess inventory, with the ever-optimistic Ruslan Kogan saying he does not believe the first quarter trading result is indicative of its projected trading performance.

Inflation and rising interest rates are putting pressure on households across Australia and New Zealand. It's in the Kogan.com DNA to obsess over delivering the most in demand products and services at the best possible prices. We know that during periods of belt tightening like this, our responsibility to be the best place for Aussies and Kiwis to get a bargain on their key household items is more important than ever.

Good luck to Mr Kogan and his Kogan.com business. Kogan.com shares have fallen 86% from their October 2020 peak, although they have bounced almost 30% higher off their July 2022 low.

Whilst Kogan does indeed compete on price, it's not the only discount retailer on the web. And when belts are being tightened, replacement cycles for cheap TVs and the like just might blow out a little.

6) The consumer discretionary stock I'm playing for the coming economic slowdown is Best & Less Group (ASX: BST). 

50% of its sales are in the baby and kids market. As children grow, they need bigger clothes, so there is a repeat purchase element to the business. 90% of its items sold retail for less than $20 and their average selling price is a modest $8.33.

Best & Less is profitable, has net cash on its balance sheet, and pays an attractive fully franked dividend.

Best and Less shares trade on eight times earnings with a fully franked dividend yield of 9.5%. Whilst not immune to an economic slowdown and having formidable competitors in the likes of Big W and Kmart, there does appear to be a decent level of downside protection for Best & Less shareholders.

The post The bear market rally has seen the ASX 200 jump five percent higher in October. It could all be about to run out of steam appeared first on The Motley Fool Australia.

Alphabet Inc (NASDAQ: GOOG), or Google to you and me, looks to be joining the crypto party.

Google has been gradually increasing its footprint in the crypto space for some time now.

And this week, the tech giant announced a partnership with Coinbase Global Inc (NASDAQ: COIN) to improve the Web3 ecosystem.

Google Cloud to accept crypto payments

According to news provided by Google Cloud, that partnership will see certain customers be able to pay for their cloud services via select digital tokens.

Coinbase supports numerous cryptos, including Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE).

Following the initial rollout in early 2023, Google will likely expand that offering to more customers.

Atop enabling payments in select tokens, CNBC reports that Google is also looking into the possibility of employing Coinbase Prime. Coinbase Prime stores companies' cryptos alongside enabling trades.

What did management say?

Commenting on the partnership that will see Google Cloud accept crypto payments, Coinbase CEO Brian Armstrong said: "We are excited Google Cloud has selected Coinbase to help bring Web3 to a new set of users and provide powerful solutions to developers."

Armstrong continued:

With more than 100 million verified users and 14,500 institutional clients, Coinbase has spent more than a decade building industry-leading products on top of blockchain technology. We could not ask for a better partner to help execute our vision of building a trusted bridge into the Web3 ecosystem.

Google Cloud CEO Thomas Kurian also touted the advantages for Web3 developers:

We want to make building in Web3 faster and easier, and this partnership with Coinbase helps developers get one step closer to that goal… Our focus is making it frictionless for all customers to take advantage of our scalability, reliability, security, and data services, so they can focus on innovation in the Web3 space.

It's unclear if Google intends to hold the Bitcoin, Ethereum or other cryptos it receives as payment for its cloud services or swap them for fiat currency.

The post Is Google now joining the crypto party following its latest move? appeared first on The Motley Fool Australia.

When it comes to fast-growing stocks, it's best to seek out companies with consistent revenue gains over the long-term. Multiple growth stocks have been hit hard in 2022 as many are key players in the tech industry. 

Companies such as Netflix, Inc. (NASDAQ: NFLX), Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL), and Nvidia Corporation (NASDAQ: NVDA) have suffered significant declines in their share prices since January as inflation increases have led to reduced consumer spending and investors slowly backing away from the affected companies.

However, each of these companies continues to be a dominating presence in its respective industry and has seen substantial growth in revenue over the last three years, as can be seen in the table below. 

Data source: YCHARTS.

These three top-growing stocks have a history of growth over the years and are likely to provide significant gains for investors willing to wait. Let's have a look. 

Netflix

This streaming titan has seen exponential growth since its online-video platform launched in 2007. Its annual revenue grew at an average growth rate of 28%.

However, Netflix has had a rough 2022. Its stock has dipped 62% since January on the back of losing over 1 million subscribers in its first two quarters. However, the company projects a gain of 1 million new members in Q3 2022, which could end its subscriber declines.

Moreover, Netflix will launch its ad-supported tier in November, providing a more budget-friendly subscription option that is likely to boost revenue. On Sept. 15, Evercore ISI analyst Mark Mahaney upgraded Netflix's stock to buy. He also projected the ad tier will bring in about $2 billion in incremental revenue by 2024, with another $500 million to $1 million of incremental growth generated from crackdowns on password sharing. 

With the addition of advertising revenue, restrictions on password sharing, and Netlfix's recent venture into gaming, the company is likely to continue growing for years to come. 

Alphabet

As one of the fastest-growing companies in the world, Alphabet has revolutionized multiple aspects of the tech industry. The company is home to potent brands such as Android, Chrome, YouTube, and Google, which each have a substantial market share in their corresponding industries. Alphabet's dominance in markets such as search engines, smartphone operating systems, online-video sharing, and internet browsers has helped it become a digital-advertising star. 

The company has retained a leading position in digital advertising since at least 2016, with a 28% share in 2022. In fact, nearly 93% of the company's $69.6 billion revenue came from ads in the second quarter of 2022, when combining Google and YouTube's advertising earnings. 

As a result, investors have grown concerned that if inflation keeps rising, companies might slash their advertising budgets, equally slashing Alphabet's revenue. However, according to market research firm Insider Intelligence, U.S. digital ad spending is expected to rise 31% from $239.89 billion in 2022 to $315.52 billion in 2025.

Additionally, companies like Netflix and Disney are increasingly turning to ads to reduce subscription fees for budget-conscious consumers. Other subscription-based businesses could turn to Alphabet's Google Network to supplement a reduced membership price with ads. 

Nvidia

Nvidia has been one of the hardest-hit stocks in 2022, down almost 60% year to date. The company is a leader in graphic processing units (GPUs), responsible for 95% of the market. The company's GPUs power gaming PCs around the world and played a crucial role in the crypto-mining market.

As a result, this year has been a perfect storm for Nvidia as slumps in the PC market and changes to how the cryptocurrency Ethereum is produced decreased demand for GPUs. 

Despite a rough year, the company's outlook is positive. Nvidia has made a name for itself in the gaming community, and its expansion into artificial intelligence (AI) is very promising. The company's chips are critical components in the machines responsible for handling more than 90% of all AI workloads in data centers worldwide. Furthermore, according to Grand View Research, the AI market is expected to expand at a compound annual rate of 38.1% from 2022 to 2030.

The GPU market may be down this year, but the device remains a crucial component in millions of PCs worldwide. Demand won't be down forever, with Nvidia's data center business likely to continue expanding. Its data center business was responsible for 56% of Nvidia's revenue in the latest quarter, with the segment seeing a 60% increase year over year. 

Nvidia is a fast-growing company and an excellent buy for investors in it for the long haul. 

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

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As of June 2022, Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) portfolio controls 10.67 million shares of Amazon.com,Inc. (NASDAQ: AMZN) -- a position worth $1.29 billion. Buffett has long been a fan of the company, praising its management skill and dominance of the e-commerce and cloud computing industries.

Let's explore why it could also make a top investment for your portfolio. 

An undeniably quality business 

Warren Buffett's investment strategy focuses on quality businesses instead of struggling "cigar butts" that are past their prime. With unquestionable dominance of U.S. e-commerce and global cloud computing (boasting market shares of 38% and 34%, respectively), Amazon is as quality as they come. And despite near-term challenges, the company's long-term trajectory remains intact. 

Second-quarter results were a mixed bag. Net sales grew 7% to $121.2 billion. But challenges like inflation and the end of the COVID-19-related online shopping boom put pressure on the company's margins leading to a net loss of $2 billion, down from a net profit of $7.8 billion in the prior-year period. That said, both headwinds look likely to normalize over the long term (for example, the Federal Reserve is raising rates to tame inflation) and are related to macroeconomic challenges, not company-specific failures. 

Amazon has plenty of options to drive continued growth. According to Insider, it plans to roll out its online marketplace in five new countries, mainly in Africa and Latin America, next year. Cloud computing is also an exciting opportunity. Management believes the economy is at the early stages of cloud adoption, leaving plenty of room for expansion as Amazon Web Services (AWS) leverages its economic moat in the industry. 

A rock-solid economic moat 

What exactly is an "economic moat"? Coined by Warren Buffett, the term refers to a company's ability to sustain a long-term competitive advantage over rivals. For Amazon's e-commerce operations, this largely comes down to its scale and network effects. Because more consumers buy on Amazon, more merchants sell on Amazon -- leading to more competition and product variety, which becomes a positive feedback loop. Scale also benefits Amazon's cloud business, AWS, in terms of brand recognition and high switching costs for clients who might consider its competitors.

Over the long term, Amazon is likely to use its natural advantage to expand into new synergistic industries like advertising. According to Insider, Amazon is now the third-biggest digital advertising company in the world -- behind Google and Facebook -- generating $31 billion in 2021. The company's massive user base of shopping-motivated customers gives it a natural advantage in this competitive industry. 

Be greedy when others are fearful

With the S&P 500 down 21% year to date, we are now in a bear market. And the Fed's rate hikes and other tightening policies could make the downside worse before it gets better. That said, bear markets are a great time to bet on quality companies trading at a discount to their historic highs. And Amazon's resilient operations and rock-solid economic moat could make it a great way to bet on a rebound. It isn't hard to see why Buffett backs the company. 

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

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Meta Platforms (NASDAQ: META), formerly Facebook, has been frustrated for the last 15 years by having to play by Apple's and Alphabet's rules on iOS and Android.

Meta's first attempt to circumvent the duo's smartphone dominance, the Facebook phone, ended as a dismal failure in 2013. But the company's second bite at the apple has a much better chance of working.

Here is how Meta Platforms plans to disrupt the two smartphone empires.

Love at first sight

Meta founder Mark Zuckerberg first formed the seed of a plan to topple the iOS and Android empires after Google co-founder Sergey Brin introduced him to a Google Glass prototype on the sidelines of an awards ceremony. The Glass project was Google's first attempt at augmented reality (AR), a technology that superimposes computer-generated visual content on a user's view of the real world via a set of glasses. And Zuckerberg's first look at Glass was love at first sight.

Once Zuckerberg got a pair and took a closer look at what the technology could do, it wasn't long before he visualized his company creating its own smart glasses hardware platform, where it would be free from following other companies' rules. 

The platform of tomorrow

Facebook missed the birth of the mobile phone era. But once it was clear that the world was near the dawn of new computing technology, Zuckerberg began making aggressive bets. 

His first bet was the acquisition of Oculus in 2014 for $2 billion. It was a promising small company developing virtual reality (VR), an interactive computer-generated simulation of a three-dimensional environment. When the company first announced the Oculus acquisition, Zuckerberg was quick to say that mobile is today's platform, but the company was getting ready for the platforms of tomorrow.  

Meta is relatively early in its VR opportunity, with massive growth ahead. Fortune Business Insights projects the global VR market to grow from $16.67 billion in 2022 to $227.34 billion by 2029, a compound annual growth rate of 45.2%.

Zuckerberg has an AR vision, too

While VR should grow into a massive market over the next decade, Apple CEO Tim Cook said in a 2016 interview with ABC News that he favors AR over VR and believes AR will eventually be the larger of the two.

You might then wonder why Zuckerberg did not pursue AR first. The answer is that VR technology was much further ahead than AR toward becoming a viable consumer product in 2014.  

But in 2022, industry analysts believe the AR market is geared to take off. Market research company Insider Intelligence projects that this country's AR market will grow to 89.4 million users by the end of 2022 and reach 100 million users in 2025 -- 35.5% of all U.S. internet users.

And at the World Economic Forum earlier this year, CNBC reported that Nokia CEO Pekka Lundmark believes that smart glasses will replace smartphones by 2030, a growing belief among some tech executives. Should that occur, it could potentially end the iOS and Android chokehold on wireless mobile technology, a desirable scenario for Meta.

Consequently, Zuckerberg's second bet is heavy investment in AR. Meta's division that develops AR and VR products, Reality Labs, began introducing AR products in 2021. It started with Ray-Ban Stories, a limited-feature smart glass produced in collaboration with the EssilorLuxottica brand Ray-Ban. Users can take pictures and videos, listen to music, and take phone calls with these glasses.

Its full-featured AR is named Project Nazare, which will likely take many years to develop into a finished product. According to tech news website The Information, Meta wanted to release its first consumer version of Nazare in 2024. But it has since scrapped those plans, likely because of the souring global economy. 

A cloudy short-term picture

In May, Reuters reported that Meta's chief technology officer Andrew Bosworth told Reality Labs employees that it would not be able to afford some projects and that the company could postpone other projects. And things have only gotten worse since May.

Meta's second-quarter total revenue declined 1% year over year due to unfavorable foreign exchange rates, the war in Ukraine, Apple's iOS changes, weakness in e-commerce, and a sour economy. And Reality Labs had an operating loss of $2.8 billion in the quarter. Should the economy worsen, management could decide on further cutbacks. So there are reasons to avoid Meta's stock, which include rumors that Apple will start releasing its AR/VR products in 2023, potentially jumping ahead of Meta.

However, Meta's shares now trade at a trailing price-to-earnings (P/E) ratio of 11.6, close to a historic low -- compensating investors for taking some risk. So if you are a long-term investor who believes in Zuckerberg's vision, now might be a great time to grab a few shares. If the company successfully creates a smart-glass platform, today's valuation could look low 10 years from now.

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

The post Here's how Meta Platforms plans to disrupt Apple's and Google's smartphone empires appeared first on The Motley Fool Australia.

This market is taking no prisoners. Whether you own shares of a newly public company or one of the world's most dominant technology enterprises like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), it's been a rough year. Specifically, Alphabet is down 35% from its high, its largest decline since the Great Recession (2007-2008).

But it's not just a market issue. Companies that advertise to make money, like Alphabet, are pointing out economic turbulence on the horizon and bracing for a more challenging operating environment. It can sound cliched, but leaning into the fear and buying Alphabet could be a decision you're bragging to your friends about when things eventually turn around. Here is why.

Advertising is becoming treacherous waters

Alphabet makes most of its money by selling ads on its two most popular internet platforms, Google Search and YouTube. Traffic is a vital part of that. The more eyeballs you have, the more you can charge for your ads. However, the total money companies spend on ads, which you can think of as a pie, can fluctuate in size. Companies might advertise more when the economy is doing well, and potential customers are spending more. On the other hand, ad budgets might shrink when the economy is doing poorly, and people aren't spending as much.

The US economy has already been slowing down. Gross domestic product (GDP) was negative over the past two quarters. Some view it as a recession already, but the worst might not be over. The Federal Open Markets Committee (FOMC), which sets the federal funds rate, the benchmark interest rate that determines what the rest of the economy can borrow at, is rapidly increasing rates to combat high inflation.

U.S. Inflation Rate data by YCharts

This affects the economy. You may notice that mortgage rates at your local bank have soared. Companies that borrow money must now pay higher interest on their loans. Rising rates make borrowing more expensive and reduce how much people and businesses spend. That lower economic activity means that advertising budgets are likely coming down. That pie piece that represents advertising spend may get smaller.

Broken stock, not broken company

You can see this play out in Alphabet's revenue growth over the past year, which has dramatically decelerated. Going from 40% growth year over year to 12% growth in four quarters seems like hitting the brakes pretty hard. But it's essential to understand the context behind this and ask: Is this because Alphabet isn't getting the eyeballs to charge for its ads, or is what companies spend on ads shrinking?

GOOG Revenue (Quarterly YoY Growth) data by YCharts

Based on the economic circumstances above, the pie is getting smaller. You can check advertising companies' landscapes and see similar growth collapses. Roku, for example, guided for 35% revenue growth for the entire 2022 year in the first quarter. But it completely withdrew its full-year revenue growth guidance just one quarter later due to economic concerns.

On the other hand, Alphabet's top two platforms (Google and YouTube) remain top traffic getters. A report for August from Semrush named Google and YouTube as the two top sites on the internet, garnering more than 23 billion visits in August. Facebook.com was third at just 5.5 billion visits, which shows just how large the gap is between Alphabet and the rest of the field. Investors can be reasonably sure that Alphabet's ad revenue will recover once the economy improves because its websites remain the dominant internet destinations where brands prioritize their ad budgets.

Enjoy the sale

The stock's decline remains a buying opportunity for long-term investors. Alphabet now trades at its lowest price-to-earnings (P/E) ratio in a decade and is well below its median P/E of 27. From a price-to-sales (P/S) standpoint, the stock has only been less expensive during the COVID-19 crash in 2020.

GOOG PE Ratio data by YCharts

Sure, growth may slow temporarily in this cruddy economic environment. Still, Alphabet remains a dominant business with a fortress-like balance sheet that includes $125 billion in cash against just $12 billion in debt. It seems this drop is market- and economy-driven and not due to Alphabet's fundamentals, making this a possible buy-the-dip moment for patient investors.

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

The post This FAANG stock is down 35%. Buying it could be a genius move appeared first on The Motley Fool Australia.