Shares of Google's parent company Alphabet (GOOGL) slumped out of the gate Wednesday after the search engine giant reported mixed results for its fourth quarter and issued an outlook for capital expenditures that was way ahead of expectations.
In the three months ending December 31, Alphabet's revenue increased 11.8% year over year to $96.5 billion. Its earnings per share (EPS) rose 31.1% from the year-ago period to $2.15.
Alphabet's revenue growth was led by its Google Cloud unit, which achieved a 30% increase in sales to $12 billion. Meanwhile, total advertising revenue was up 10.6% year over year to $72.5 billion, including 13.8% growth to $10.5 billion at YouTube.
"Our strong performance in Q4 was driven by our leadership in AI [artificial intelligence] and momentum across the business. We are building, testing, and launching products and models faster than ever while making significant progress in compute and driving efficiencies," said Alphabet CEO Sundar Pichai in a statement.
Pichai added that advances in AI and search are increasing user engagement and that the company's solid results were driven by its AI-powered cloud portfolio and YouTube. "Together, Cloud and YouTube exited 2024 at an annual revenue run rate of $110 billion," he pointed out.
The results were mixed compared with analysts' expectations. Wall Street was anticipating revenue of $96.6 billion and earnings of $2.13 per share, according to CNBC.
In addition to the top-line miss, accelerated capex spending is weighing on the Magnificent 7 stock Wednesday. Indeed, Alphabet unveiled plans to spend approximately $75 billion in capital expenditures in 2025. This capex figure came in well ahead of analysts' expectations for $58.8 billion in spending.
Is Alphabet stock a buy, sell or hold?
Alphabet has been a market-beating machine for years. In the past 12 months alone, shares have generated a 45% total return (price change plus dividends) through the February 4 close vs the S&P 500's 23% gain. And Wall Street is bullish on the communication services stock.
According to S&P Global Market Intelligence, the average analyst target price for GOOGL stock is $215.44, representing implied upside of roughly 14% to current levels. Additionally, the consensus recommendation is a Buy.
Financial services firm Wedbush is one of those with an Outperform (equivalent to a Buy) and $220 price target on the blue chip stock.
Despite the post-earnings selloff, Wedbush analyst Scott Devitt says he continues "to see a favorable risk/reward for Alphabet and thinks there is a case for multiple expansion in the coming quarters as investors gain more comfort related to infrastructure spending, regulatory risk, and the impact of generative AI on Google Search."
