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While several tech giants have massively benefited from the artificial intelligence (AI) wave, tech behemoth Alphabet (GOOGL) found itself navigating choppy waters in 2024, with regulatory challenges threatening its dominance in the online search and advertising arena. A crushing antitrust ruling over its exclusive search deals with Android and Apple (AAPL) has shaken its foundation, while reports of a potential breakup involving key assets like the Chrome browser loom large.
Such moves could fracture Alphabet’s digital monopoly, reshaping its influence in search and beyond. Compounding the pressure, Alphabet is battling the perception of lagging behind in AI innovation. Yet interestingly, despite facing mounting regulatory hurdles, Alphabet is seeing a sudden shift in momentum as investor optimism grows thanks to two major catalysts. Firstly, the tech giant recently revealed that its autonomous vehicle division, Waymo, has been quietly expanding its reach, bringing us closer to a fully autonomous future.
Secondly, Alphabet’s new quantum computing chip, called Willow, has added even more fuel to the fire. Despite being in its early stages of development, Willow has generated a significant buzz for its groundbreaking potential, further lifting investor optimism about Alphabet’s future in quantum computing. Thus, with all these developments in play, would now be an opportune time to jump in on this beaten-down tech stock?
About Alphabet Stock
Commanding a hefty market cap of roughly $2.4 trillion, Google-parent Alphabet has transformed industries from healthcare and entertainment to AI and autonomous driving. With AI deeply integrated into key offerings like Gmail, Google Maps, and Photos, Alphabet continues to set new standards for user experience and efficiency. The company’s diverse subsidiaries, Google Services, Google Cloud, and Other Bets, work in harmony.
Google Services leads the way with its search dominance, while Google Cloud offers next-gen enterprise solutions. Meanwhile, the company’s Other Bets division propels groundbreaking initiatives, from Waymo's self-driving cars to DeepMind’s trailblazing AI research. In fact, recently, Alphabet’s Waymo revealed that it is revving up its expansion, with plans to test driverless Jaguars in Miami next year and launch paid robot taxi rides by 2026. After extending its service to Los Angeles, Phoenix, and San Francisco, the company is also eyeing Atlanta and Austin in partnership with Uber (UBER). With 200 vehicles already on the road in Phoenix and a new collaboration with Moove for maintenance, Waymo is bringing Alphabet’s 2009 self-driving car dream to life. Despite ongoing losses, Waymo’s accident-free record and 150,000 weekly trips are boosting confidence and attracting major investments.
Thus, after struggling initially this year, fueled by the optimism surrounding Waymo's huge progress so far and, of course, Alphabet’s new innovation, Willow, GOOGL stock has suddenly caught fire, hitting a fresh all-time high of $199 on Dec. 16. Shares of this mega-cap stock are up roughly 50% over the past year and 42% on a YTD basis, soaring beyond the broader S&P 500 Index’s ($SPX) 30.3% annual growth and 26.9% YTD return.
In a historic move earlier this year, Alphabet paid its first-ever dividend of $0.20 per share on June 17. In its latest earnings release, the company declared another quarterly dividend payment of $0.20 per share, set to be distributed to its shareholders on Dec. 16. The company’s forward annualized dividend of $0.80 per share reflects a modest 0.41% yield.
Furthermore, despite the stock’s recent strong price action, GOOGL still remains an appealing value play. Trading at just 23.13 times forward earnings, the stock offers a more attractive entry point compared to its high-flying "Magnificent Seven" peers like Tesla (TSLA) and Nvidia (NVDA).
Alphabet’s Q3 Earnings Beats Wall Street’s Projections
Alphabet dropped its third-quarter earnings report on Oct. 29, which far exceeded Wall Street’s expectations on both the top and bottom lines, sparking a nearly 2.8% surge in its share in the following trading session. Total revenue for the quarter reached $88.3 billion, marking a 15% year-over-year increase, driven by robust momentum across its diverse business segments, and also comfortably surpassed Wall Street’s forecasted figure of $86.2 billion.
Earnings per share (EPS) soared 36.8% annually to $2.12, crushing estimates by a nearly 15.9% margin. Digging further into segments, Google Services saw a solid 13% increase in revenues, totaling $76.5 billion, powered by impressive performances across key areas, including Google Search, subscriptions, platforms, devices, and YouTube ads. This broad-based strength highlights Google’s continued dominance in advertising and digital services.
On the cloud front, Alphabet reported a stellar $11.4 billion in revenue, reflecting a nearly 35% year-over-year surge, fueled by rapid growth in its Google Cloud Platform (GCP) products. Meanwhile, Alphabet's Other Bets segment, which encompasses the self-driving car initiative Waymo, saw a notable revenue jump to $388 million, up from $297 million a year ago. This growth highlights the company's successful diversification and its commitment to pioneering new, innovative ventures.
While reflecting on the company’s Q3 performance, CEO Sundar Pichai highlighted the company’s remarkable momentum, driven by a strong commitment to innovation and strategic investments in AI. He noted that AI tools are creating value for both consumers and partners, with new AI features in Search expanding the scope and depth of searches. In Cloud, AI solutions are boosting product adoption, attracting new customers, and securing larger deals.
The CEO also pointed out YouTube’s incredible milestone, with total ads and subscription revenues surpassing a stunning $50 billion over the past four quarters for the very first time. He further added, “We generated strong revenue growth in the quarter, and our ongoing efforts to improve efficiency helped deliver improved margins. I’m looking forward to driving more advances for consumers, customers and creators globally.”
Over the longer term, analysts tracking Alphabet expect the company’s bottom line to climb a notable 38.1% year-over-year to $8.01 per share in fiscal 2024 and rise another 11.2% to $8.91 per share in fiscal 2025.
Alphabet’s Major Breakthrough in Quantum Computing
On Dec. 9, Hartmut Neven, founder and lead of Google Quantum AI, unveiled Willow, the company's latest quantum chip, setting a new benchmark in quantum computing. Willow delivers state-of-the-art performance across multiple key metrics, achieving two remarkable feats.
First, it dramatically reduces errors as qubits scale up, solving a long-standing challenge in quantum error correction. Secondly, Willow completed a standard benchmark computation in just under five minutes.
This breakthrough brings Google Quantum AI closer to its goal of developing large-scale quantum computers that can harness the power of quantum mechanics to transform science, solve real-world problems, and benefit society.
What Do Analysts Expect for Alphabet Stock?
Overall, Wall Street remains highly bullish on GOOGL stock, maintaining a consensus rating of “Strong Buy.” Of the 50 analysts offering recommendations, 40 advise a “Strong Buy,” three suggest a “Moderate Buy,” and the remaining seven analysts maintain a “Hold.”
The average analyst price target of $210.61 indicates only 6% potential upside from the current price levels, while the Street-high price target of $240 suggests that GOOGL could rally as much as 21% from here.
