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Alphabet (GOOGL), Google's parent company, is one of the world's most valuable technology companies, worth $2.04 trillion. Its renowned and diverse portfolio includes search engines, digital advertising, cloud computing, artificial intelligence (AI), and more.
Since 2016, Alphabet has included AI in its products, such as Gmail and Maps. As the AI era progresses, the company has been at the forefront of AI development, and its AI investments are expected to yield significant returns in the coming years. Furthermore, with a 91% market share, Google Search dominates the global search engine market, which is unbeatable. Its outstanding second-quarter results reflected its robust business model and dominance in the global tech landscape.
Year-to-date, GOOGL stock has surged 18.8%, compared to the tech-heavy Nasdaq Composite’s ($NASX) gain of 17.9%.
AI Initiatives and Legacy Product Strength Are Driving Growth
Over the last five years, Alphabet's revenue and earnings have increased at a compounded annual growth rate of 14% and 17. 2%, respectively. In the second quarter of 2024, Google Search generated $48.5 billion in sales, up 13.8% year-over-year (YoY). Search accounted for 57% of total revenue.
Google Cloud, while still trailing Amazon's (AMZN) AWS (Amazon Web Services) and Microsoft's (MSFT) Azure, is rapidly gaining market share. It is the second largest contributor to Alphabet's revenue, which grew by 28.7% to $10.3 billion in the quarter, thanks to AI.
Total revenue increased by 13.5% to $84.7 billion, while adjusted earnings per share rose 31.2% to $1.89. Management highlighted in the Q2 earnings call that Cloud achieved $10 billion in revenue for the first time and $1 billion in operating profit. Plus, the company stated that more than 2 million developers use the company's AI infrastructure and generative AI solutions for cloud customers.
Between 2024 and 2030, the global cloud computing market is expected to grow at a compound annual growth rate (CAGR) of 21.2%, and Alphabet is well-positioned to capture a significant portion of it.
Moreover, advertising generates a significant amount of revenue for the company. Google's advertising revenue increased to $64.6 billion, up from $58.1 billion the year before. Plus, YouTube ads increased by 13% in the quarter, driven by direct response advertising. According to Nielsen data, YouTube remained the most popular streaming platform on television screens in the United States for the 17th consecutive month.
The global digital advertising market is expected to reach $1.3 trillion by 2027. Google is the leading player in this space, and with the help of AI, it is well-positioned to capitalize on the growing market.
CEO Sundar Pichai stated, “Combined with our model-building expertise, we are in a strong position to control our destiny as the technology continues to evolve. Importantly, we are innovating at every layer of the AI stack, from chips to agents and beyond, a huge strength.”
At the end of the second quarter, the company had $110.9 billion in cash, cash equivalents, and marketable securities, with $13.2 billion in long-term debt due. Additionally, it generated $13.5 billion in free cash flow (FCF). The company intends to continue its aggressive investment in Generative AI solutions. A solid balance sheet with a strong FCF balance should allow for this.
In addition to focusing on growth, the company is committed to returning money to shareholders. Alphabet has announced a quarterly dividend of $0.20 per share, which is payable in September.
For the full year, analysts expect Alphabet’s revenue to increase by 12.9%, while earnings could grow by 31.4%. Revenue and earnings are expected to grow by 11.3% and 13.9%, respectively, in 2025. Alphabet, trading at 21 times forward earnings, still appears to be reasonably valued for a hyper-growth AI stock.
What Does Wall Street Say About GOOGL Stock?
Recently, Needham analyst Laura Martin reiterated a “buy” rating on GOOGL stock, with a $210 price target. The analyst agrees with the CEO of a GenAI infrastructure company that Alphabet and Amazon are the winners in the race to build generative AI tools, features, and capabilities.
Furthermore, Jefferies and JMP Securities also maintained their “buy” ratings for GOOGL, with target prices of $220 and $200, respectively.
On Wall Street, GOOGL stock is a “strong buy” overall. Out of the 44 analysts in coverage, 34 rate the stock a “strong buy,” three recommend a “moderate buy,” and seven suggest a “hold.” Based on the average target price of $204.71, the stock has an upside potential of 23.2% from current levels. Its high target price of $225 suggests that GOOGL can rally up to 35.4% over the next 12 months.
The Bottom Line on GOOGL Stock
Despite fierce competition in the AI-driven tech industry, Alphabet is well-positioned to continue its growth trajectory. The integration of AI into Google Search, advertising, and cloud services is expected to improve user experience while driving revenue growth.
Given its AI leadership, strong cloud business, and dominant position in digital advertising, Alphabet stock is still one of the best AI stocks to invest in today.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
