The ongoing semiconductor shortage is stalling industries around the world. Semiconductors are required for all electronic devices to function properly, from computers to can openers to automobiles. As a result, products such as vehicles are shipped without major features, and many other products are not manufactured simply because the basic components are not available.
A recent example was Google from Alphabet Inc. (GOOG, GOOGL), which had to delay the launch of a new “super-affordable” Android phone in India. Why? Insufficient chips needed to manufacture the device. Given that India has a population of over 1 billion (a huge market), this is a big blow. That said, we are aiming for the most affordable smartphone in the world, so it seems likely that it will succeed even after its launch.
- The shortage of semiconductor chips is affecting companies around the world.
- There is reason to believe that the shortage will not have a long-term impact on Google’s parent Alphabet Inc’s stock.
- Big money continues to flow into stocks.
On the surface, this delay looks like bad news. And I admit that the situation isn’t the best, but let’s keep some perspectives. Alphabet’s hardware business is growing, and software giants are digging deeper into hardware, including building their own laptop chips.
This is certainly welcome news for investors as the profitability of the hardware segment is increasing. In the last quarter, the hardware-containing segment (including Play Store and some YouTube revenue) generated $ 6.6 billion, up from $ 5.12 billion in the previous year.
Obviously, this is a powerful derivative of Google’s traditional search and advertising business. Therefore, investors, especially Big Money, may be expecting the hardware business to continue to grow as foreign customers adopt new devices such as affordable smartphones in India. Global revenue growth supports such expectations.
Highest earnings ever and massive global growth are why BigMoney considers Alphabet to be one of the best stocks. I track Big Money’s activities as both a passion and a profession. Institutional investors love the highest quality stocks, and Alphabet certainly meets the bill. This means that revenue and profits are increasing with emerging business units. What do you dislike?
Inventories have skyrocketed 252% since 2017. The influx of big money is an undeniable part of the rise. See the chart below to show what I mean.
These big money signals are generated by my research firm, MAPsignals. Since 2017, Alphabet inventory has made 33 of them. This means that the stock is flowing into the stock and the stock is of high quality (revenue and profit growth). The chart above shows just a handful of those signals to give you ideas.
Going back to semiconductors, at least related to the alphabet, Big Money seems to see chip shortages as just a clash of long and profitable journeys. Over time, supply chain issues should resolve. And who knows, the situation may be ripe for innovation (like when Google unleashed a search engine that has become a commonly used verb ever since).
Google’s parent alphabet stocks have been on fire for a long time. And the fundamentals are still looking so good that this great run should be extended despite the lack of chips. Big money seems to agree. Record revenue, a growing hardware business, and a larger global presence will only help.
Disclosure: At the time of publication, the author holds a long position in GOOG and GOOGL for personal and administrative accounts.