Alphabet (GOOGL) doesn’t seem like your typical growth stock, considering it opened at $1,030.99 [Friday] morning. But Wall Street is overlooking the explosive potential our tech guru sees…

Money Morning Director of Technology & Venture Capital Research Michael A. Robinson believes Alphabet Inc. (Nasdaq: GOOGL) has $48 billion in new yearly hardware sales ahead of it thanks to the Pixel 2 smartphone launch.

Even with this new revenue source just launching in October, Alphabet announced a double-digit sales increase in its Q3 2017 earnings report [on Thursday]. The GOOGL stock price [was] up 5.94% [yesterday] thanks to its earnings report.

That came as no surprise to us.

“With a market cap of $686.10 billion, the stock trades at roughly $1,001 a share – and still has plenty of upside ahead,” Robinson said on Oct. 23.

Now, Robinson estimates Google can add $48 billion in new yearly sales, and that’s just the beginning of what Google is planning…

Alphabet (GOOGL) Crushes Its Q3 2017 Earnings Report

Alphabet announced its Q3 2017 results [Thursday] and handily beat Wall Street’s expectations.

Analysts expected earnings per share (EPS) of $8.33 on $27.2 billion in revenue. Instead, Alphabet reported $9.57 on $27.7 billion.

That’s a 24% increase in sales year over year (YoY).

Google lumps its revenue into advertising and “other revenue,” which includes its cloud business and hardware sales.

Google’s “other revenue,” which includes hardware, only totaled $3.45 billion out of $27.2 billion in Q3 2017.

That’s only 12% of total revenue.

That’s why the mainstream media are still just focusing on Google’s ad and search business and are totally overlooking what’s about to happen.

You see, a $48 billion increase in new hardware sales is an additional $12 billion per quarter, just from one piece of hardware. That would have pushed Google’s total revenue to $39.7 billion this quarter, and that would have accounted for 30% of total revenue.

If a 24% jump in revenue sent the stock soaring [yesterday], imagine what adding another 30% increase would do.

But as we said before, that revenue increase isn’t the only reason we’re following the Pixel’s sales.

Fortunately for Money Morning readers, Robinson knows the real story behind what Google’s planning, including what that could mean for Google stock’s share price…

This Alphabet (GOOGL) “Trojan Horse” Is Creating Double-Digit Gains

On Oct. 4, Google unveiled its new Pixel 2 smartphone.

Robinson projects that, just by capturing 5% of the global smartphone market, the Pixel 2 will sell 75 million phones a year. With a conservative $650 average selling price, that’s $48 billion in new yearly sales.

Again, that would add $12 billion per quarter to Alphabet’s sales totals.

But that $48 billion in new revenue may be too conservative…

Robinson believes that the Pixel 2 is actually just a “Trojan Horse” to sell its software products.

“The company is taking a page out of Apple’s playbook and making the Pixel the central piece in its hub-and-spoke software strategy,” Robinson said.

Right now, Google is creating an “ecosystem” through its hardware. If you buy an Apple smartphone, you can stream songs through Apple Music, a streaming service that costs $9.99 per month.

Now, with the Pixel 2, smartphone owners will be introduced to Google’s entertainment services. Alphabet has its own music service called Google Play Music. It can be used on a phone, tablet, computer, or smart TV.

Google Play Music costs $9.99 to stream millions of songs.

Now, we don’t have any hard projections because the Pixel 2 was just launched at the start of October. But if Alphabet sells 75 million phones a year and just half of those customers sign up for Google Play Music, that’s an extra $4.4 billion per year in revenue.

That puts a potential total of $52.4 billion per year in new revenue and an extra $13.1 billion per quarter all thanks to one phone.

And when Google starts adding more smartphone customers, they will be more inclined to use Google’s other hardware products, like Apple users do with iPhones, iPads, and the Apple Watch.

Google has a smart thermostat, Chromebook laptop, Wi-Fi router, smart speaker, and web-streaming box for Pixel users to grow their Google ecosystem collection.

That means even more potential revenue in hardware sales.

Of the analysts who cover Alphabet stock, 89% are bullish like Robinson and recommend it as a buy. That’s up 3% from the 86% of analysts who recommended GOOGL stock in July, according to FactSet.

And Société Générale, a French-based bank, is especially bullish on GOOGL stock.

In the next 12 months, the bank expects the GOOGL stock price to trade for $1,320 per share. From [yesterday’s] opening price of $1,030.99, that’s a potential profit of 28%.

The Bottom Line: The Pixel 2 could bring in nearly $50 billion in revenue, but that number may be too conservative. Customers who own the phone will be introduced to Google’s entertainment platforms, bringing in even more revenue through monthly subscriptions. Over the next 12 months alone, GOOGL shareholders could net 28% in returns. In the long term, this is a stock you want to buy and hold forever.

— Jack Delaney

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Source: Money Morning

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