The ongoing semiconductor shortage is nailing industries across the globe. Electronic devices—from computers to can openers to cars—all need semiconductors to function properly. As a result, products like vehicles are shipping without key features, and many others aren't even being made because foundational components simply aren't available.
A recent example is Alphabet Inc.'s (GOOG, GOOGL) Google, which had to delay a new "ultra-affordable" Android phone launch in India. Why? A lack of chips needed to manufacture the devices. That's a tough blow considering India's population tops 1 billion (a huge market). That said, it seems as if the phone could still succeed once launched because it aims to be the most affordable smartphone in the world.
- A shortage of semiconductor chips is affecting companies around the world.
- There is reason to believe that the shortage will not have a long-term effect on shares of Google parent Alphabet Inc.
- The Big Money continues to flow into the stock.
On the surface, this delay looks like bad news. And while I'll concede that the situation isn't the best, let's maintain some perspective. Alphabet's hardware business has been growing, and the software giant is diving even deeper into hardware, like making its own laptop chips.
That's certainly welcome news for investors, as the hardware segment is turning increasingly profitable. In last quarter's earnings, the segment containing hardware (along with Play Store and some YouTube revenue) generated $6.6 billion, up from $5.12 billion the year before.
Clearly, this is a strong offshoot of Google's traditional search and advertising businesses. So, it's entirely likely that investors, especially Big Money, expect the hardware business to keep growing as international customers adopt new devices like the affordable smartphone in India. The revenue growth around the world supports such an expectation.
All-time high revenue and massive global growth are why Big Money considers Alphabet among the best stocks out there. I track Big Money activity as both a passion and profession. Institutional investors love the highest-quality stocks, and Alphabet certainly fits the bill. I mean, it has growing revenues and profits along with budding lines of business—what's not to like?
Since 2017, the stock has jumped 252%. Big Money inflows are an undeniable part of that rise. To show you what I mean, see the chart below.
Those Big Money signals are generated from my research firm, MAPsignals. Since 2017, Alphabet stock has made 33 of them. This means the stock has flows going into the shares and that the stock is high quality (revenue and earnings growth). The chart above just shows a handful of those signals to give you an idea.
Back to semiconductors, at least as they pertain to Alphabet—Big Money seems to view the chip shortage as just a bump in the road on a long, profitable journey. Over time, the supply chain issues should work themselves out. And who knows, the situation could be ripe for innovation (like when Google unleashed a search engine that has since become a commonly used verb).
The Bottom Line
Shares of Google parent Alphabet have been on fire for a long time. And with the fundamentals still looking so good, this excellent run should extend, despite the chip shortage. Big Money seems to agree. Record revenues, a growing hardware business, and a bigger global presence can only help.
Disclosure: The author holds long positions in GOOG and GOOGL in personal and managed accounts at the time of publication.