Why Google Investors Might Finally Need to View the Company Differently

This article originally appeared on Real Money on Nov. 28, 2016.

Though Alphabet's  (GOOGL) Google has had substantial non-advertising revenue streams for some time, they've never been substantial enough for a company of its size to be viewed by Wall Street as something more than an online advertising play. While non-ad businesses might get some lip service in analyst reports, it has ultimately been ad sales -- and search ad sales especially -- that formed the heart of bull and bear cases about the company, and which determined how its shares moved after an earnings report.

That might finally be set to change a little, thanks to burgeoning hardware, cloud service and app store revenue streams. A pair of reports on Monday help drive this home.

In a report reiterating an Overweight rating and $950 target for Google parent Alphabet (GOOGL) , Morgan Stanley's Brian Nowak forecasts Google's just-launched Pixel phones -- the 5-inch Pixel and 5.5-inch Pixel XL -- will produce $2 billion in revenue this year via three million unit sales, and $3.8 billion in revenue next year via five to six million units.

Nowak also estimates the phones will have gross margins in the range of 22% to 25%. Given manufacturing costs aren't believed to account for more than 40% of revenue, the gross margin estimates feel low even after accounting for non-manufacturing costs such as royalties and warranty expenses.

Alphabet and Apple are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

If you liked this article you might like

Google's Waymo Teams With Intel on Self Driving Technology

General Electric's New CEO Has One Easy Choice

Amazon, Google and Other U.S. Tech Giants Face a Battle Over Taxes With Europe

Like Your Market With a Little Froth?

Google to Appease EU Regulators by Auctioning Off Ad Space to Competitors