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With a market cap of $2.06 trillion, Alphabet (GOOGL), the parent company of Google, is a global technology titan that dominates the online search, digital advertising, and cloud computing markets.
Founded in 1998, Alphabet has grown from a search engine into a tech giant that touches almost every aspect of the internet, including advertising, cloud services, artificial intelligence (AI), and even autonomous vehicles. A diverse portfolio of businesses under its umbrella continues to generate outstanding growth.
With the generative AI race heating up, competition is fierce in the tech space. Yet, GOOGL stock remains a favorite among investors. It has gained 16.7% year-to-date, compared to the tech-heavy Nasdaq Composite’s ($NASX) gain of 19.4%.
AI Continues to Power Up Google
Alphabet remains one of the world's most dominant technology companies, with numerous growth opportunities in search, digital advertising, cloud computing, and AI. Google Search has an unrivaled market share of 91% in the global search engine market. Search generated $48.5 billion in sales in the second quarter, up 13.8% year on year.
Google Search generated 57% of the total revenue. Aside from Search, Google Cloud is a significant growth area for Alphabet, with increasing demand for cloud services from businesses of all sizes. Cloud sales increased by 28.7% in the second quarter to $10.3 billion.
The company's AI capabilities, coupled with its analytics tools, are helping Google Cloud to evolve into a more competitive player in the enterprise space. Thanks to the AI integration, the company now has over 2 million developers who use its AI infrastructure and generative AI solutions.
Google Cloud places third in the cloud computing market, trailing Amazon's (AMZN) AWS and Microsoft's (MSFT) Azure. To keep pace with its peers, it must consistently invest in its cloud lineup. Alphabet’s AI-driven initiatives in the cloud may help it gain additional market share, as the worldwide cloud computing market is forecast to rise at a compound annual growth rate of 21.2% by 2030.
In fact, Cloud achieved a first-ever revenue milestone of $10 billion and an operating profit of $1 billion in Q2. Advertising is also a major revenue generator for the company, with sales of $64.6 billion in Q2, up from $58.1 billion in the prior-year quarter.
In the quarter, Alphabet’s adjusted earnings rose by 31.2% to $1.89 per share, followed by revenue growth of 13.5% to $84.7 billion. CEO Sundar Pichai stated that Alphabet is now innovating “at every layer of the AI stack, from chips to agents and beyond, a huge strength.”
YouTube remains a powerful platform for both content creators and advertisers; YouTube ads revenue increased by 13% in the quarter. Alphabet continues to invest in new YouTube monetization features, such as YouTube Shorts and premium subscription models. Video advertising, particularly on mobile devices, is anticipated to remain a robust revenue stream for Alphabet.
Furthermore, Alphabet's Other Bets segment includes healthcare services such as Verily, autonomous driving venture Waymo, and internet services. While these initiatives are currently loss-making, they have the potential to become significant revenue generators in the future.
Alphabet's balance sheet at the end of the quarter showed $110.9 billion in cash, cash equivalents, and marketable securities, as well as $13.2 billion in outstanding long-term debt. It also had $13.5 billion in free cash flow reserves.
In addition to its aggressive AI investments, the company is committed to returning profits to shareholders. Alphabet is also a dividend stock, paying out at a yield of 0.48%. Higher earnings growth may allow the company to increase dividends in the future.
What Does Wall Street Say About GOOGL Stock?
In an interview with Yahoo Finance, D.A. Davidson analyst Gil Luria explained how Alphabet, along with the other “Mag 7” stocks (except Tesla), will keep ruling the tech sector through the next AI waves.
Luria assigned a "neutral" rating to GOOGL stock with a price target of $170, which the stock is already trading near. Its average target price of $202.20 suggests that the stock could climb 24% from current levels. Plus, the high target price of $225 implies an upside potential of 38% over the next 12 months.
Overall, GOOGL stock is a “strong buy” on Wall Street. Out of the 46 analysts that cover the stock, 35 of them rate it a “strong buy,” three recommend a “moderate buy,” and eight of them suggest a “hold.”
Analysts who cover the stock expect Alphabet's earnings to rise by 31.8% and 13.7% over the next two years, respectively. Alphabet, valued at 22 times forward 2024 earnings, is still reasonably priced for a tech company of its size and potential.
The Bottom Line on GOOGL Stock
Alphabet's ability to maintain its dominant position in search and online advertising while expanding its cloud businesses with the help of AI will be critical to its future success. However, given its legacy portfolio and brand strength, the company is well-positioned to continue innovating, making it one of the best AI stocks to buy and hold indefinitely.
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.
