How to start trading stocks, today, we'll explore three companies that I believe are still solid buys in the current market, they are ASML, Uber and Google.
One of the factors drawing attention to ASML is that a well-respected investor, Dev Canaria of Valley Forge Capital, is also investing in this company. He’s been adding to his position in ASML throughout 2024. While it's a smaller holding in his portfolio—only a couple of percentage points—his recent trades indicate that it’s one of the few stocks he is increasing his investment in, particularly at a price point of $833 before the recent dip. ASML is now trading around $673, which reflects a 2024 low, the lowest it has been all year.
It's uncommon to see monopolistic companies trading down so significantly. ASML specializes in producing machines the size of a bus, selling for approximately $300 million each. They are the only company in the world capable of manufacturing cutting-edge semiconductors essential for AI services. Competitors are likely 20 to 30 years behind ASML, making it a true monopoly in the semiconductor equipment space.
Dev’s perspective on ASML is particularly interesting. He views it as a strong growth story for the coming decade, suggesting that while AI technology may eventually become commoditized, ASML offers a compelling and predictable way to invest in AI. This statement carries significant weight, as it highlights ASML’s unique position in the market.
One of Discord members, who works at ASML, provided an insightful description of the company’s operations. He emphasized that while ASML produces various types of machines, the primary focus is on the scanner technology, which indeed represents a genuine monopoly in this field.
Uber is a name we're all familiar with. We’ve seen the app and understand its basic functions, primarily ride-hailing and food delivery. However, reducing Uber to just these services oversimplifies the complexity of what the company has achieved and how challenging it is to compete with them.
Before diving into the valuation and why I believe the company is currently undervalued, let’s explore what Uber actually does from a business perspective. According to research from Hin Group, Uber operates in over 10,000 cities across 72 countries, with gross bookings exceeding $115 billion. As the world's largest transportation network company, Uber serves more than 124 million users each month by connecting them with over 4 million independent drivers and delivery personnel.
Uber's mobility and delivery services are powered by a highly sophisticated technology platform that automatically manages and optimizes functions such as demand prediction, matching, dispatching, routing, pricing, and personalization. These are complex challenges to solve. Achieving accurate demand forecasting and ensuring adequate driver availability is a significant hurdle, yet Uber has successfully navigated this path and is now profitable.
The company holds a leading position in eight of its top ten mobility markets, generating about 90% of its global mobility gross bookings in those markets. In delivery, Uber also has category leadership in seven of its top ten markets. It’s important not to underestimate Uber as merely an app connecting drivers to customers; behind the scenes lies a remarkable level of technical achievement developed over the past decade. Uber has clearly established itself as the dominant player in this sector, akin to how Netflix has dominated streaming.
Despite perceptions that Uber may be a volatile or weak company susceptible to economic downturns, this view is misleading. The CEO has referred to Uber's business model as an "all-weather company," suggesting that it can thrive in any economic climate. The demand for Uber's services is expected to remain stable over time. Both its mobility and delivery offerings are relatively low-cost and cater to everyday needs.
Number three on our list is Google. It’s a company everyone knows, yet it's not often that we see such a powerful entity experience a sell-off—currently down 1.5% to $166—following news that the Department of Justice is demanding Google divest Chrome. I recently made a video discussing how this extreme demand could impact Google’s business.
Before we delve into the valuation and why I believe Google is a great deal right now, let’s address some concerns regarding its future, fundamentals, and regulatory environment.
First, it’s important to recognize that Google is a leader in artificial intelligence. Google One has over 100 million subscribers, with its premium version offering Alphabet’s highest-level AI functionality for $20 a month. In contrast, ChatGPT’s premium product has an estimated 10 million subscribers. This shows that Google is operating at a large scale even within AI.
Moreover, Google is significantly investing in AI, leveraging its extensive talent pool and years of experience from projects like Google Brain and DeepMind. Recently, it acquired Character.AI for $2.7 billion and plans to spend nearly $60 billion on AI initiatives. Analysts project that this investment will yield growth; Salman estimates that generative AI features will help Alphabet's business grow at around 10% annually through 2027. New AI enhancements in search are already resulting in better user engagement and satisfaction.
While the risks of antitrust regulations are real, it’s essential not to downplay them. The government is indeed seeking to impose restrictions on Google, but many of their proposed remedies appear extreme and may not withstand legal scrutiny. Analysts suggest that the DOJ's recommendations could be seen as a wish list that goes beyond what the courts would support.
Despite the negative press dragging down the stock price, Google continues to grow. Now, let’s look at the company’s valuation. I believe that many of the current challenges, if not all, are already factored into the stock price.
If we break down Google’s value, we find that Alphabet's cloud business could generate approximately $20 billion by 2025, valuing it around $325 billion at a 16x multiple, similar to Amazon and Microsoft. YouTube could be valued at around $800 billion if it traded at a 22x EBITDA, which is the average of what Meta and Netflix command.
Valuing Waymo, Alphabet’s self-driving initiative, is trickier. Uber Technologies is valued at $150 billion, while Wall Street estimates Tesla’s self-driving business between $100 billion and trillions, despite Tesla not yet completing a fully autonomous ride. In contrast, Waymo completes about 150,000 self-driving rides weekly, making it a significant player in the space. A reasonable estimate for Waymo might be around $300 billion, though some bullish analysts suggest it could be worth much more.
After accounting for Alphabet's search business, which could be worth roughly $550 billion adjusted for its $117 billion in net cash and investments, we arrive at a valuation of around $260 per share. This represents a potential 55% increase from the current price, indicating that Google is undervalued by nearly $100 or about 60%.
When we compare Google to other major tech companies, it stands out as the cheapest. For instance, Apple has a forward P/E ratio of 31, Tesla at 106, Nvidia at 37, Microsoft at 31, and Meta at 22.9. Google’s forward P/E ratio is just 19.4, making it the most attractively priced big tech stock.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
