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Why Morgan Stanley Likes Alphabet

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Aug. 18 2020, Updated 5:19 a.m. ET

Alphabet’s core business continues to do well

Google-parent Alphabet (GOOGL) had a decent second quarter. Its stock reached an all-time of $1,287 in late July. However, the stock has fallen 8% since. Alphabet now has a market cap of $818 billion and has slipped to fourth in that regard. Microsoft’s (MSFT) stellar rally saw it pass Alphabet to take the third position. The software giant now has a market cap of $868 billion, and is currently at its all-time high. The Internet giant continues to see robust ad revenue growth, and its traffic acquisition cost as a percentage of revenue declined in the previous quarter. However, the stock has been declining due to worries about stricter government regulations, which could increase Google’s expenses.

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Why the stock could rise

According to investment bank Morgan Stanley, investors are undervaluing the stock because they aren’t factoring in the tech giant’s self-driving business, Waymo.

The investment bank said on September 12 that it sees the company on the path towards the $1 trillion valuation mark. The brokerage is bullish about Waymo’s upcoming robo-taxi business and continues to see strength in its ad business.

While Waymo might miss the year-end’s launch target, it is the leader in the autonomous vehicle field.

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