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5 days ago
Alphabet (GOOGL) Turns Twenty
By: Bespoke Investment Group | August 19, 2024
Twenty years ago to the day, the company running the world's largest search engine went public. On August 19th, 2004, Alphabet (GOOGL) shares IPO'd at a split-adjusted price of $2.13. In the 20 years since, the stock has been a top performer in many aspects. Simply looking at the top line, revenues have exploded from $512 million in Q4 2003 to $84.7 billion in the latest quarter. Given its rise to become one of the six "trillion dollar market cap" companies, the stock has ripped higher an astounding 7,669% from its IPO price.
So how has Alphabet done in the 20 years since it went public versus other big winners in the stock market? Below is a look at the 30 stocks currently in the S&P 500 that are up the most over the last 20 years. As shown, these 30 names are all up more than 3,000% since GOOGL's IPO, and GOOGL ranks as the 11th best. Unsurprisingly, the single best stock by a huge margin is NVIDIA (NVDA) with a gaudy 127,418% gain, but other mega-caps like Apple (AAPL) and Amazon (AMZN) have both put up better numbers than GOOGL as well. Additional names that have done better than GOOGL include Netflix (NFLX) with a 30,000%+ gain, Monster Beverage (MNST), Booking Holdings (BKNG), Intuitive Surgical (ISRG), Regeneron (REGN), Deckers Outdoor (DECK), and Salesforce (CRM).
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1 week ago
Antitrust Scrutiny Pulls Put Traders to Alphabet Stock
By: Schaeffer's Investment Research | August 14, 2024
• The Department of Justice (DOJ) is considering breaking up Alphabet
• A court ruled the company monopolized the online search market
The Department of Justice (DOJ) is considering breaking up Big Tech titan Alphabet Inc (NASDAQ:GOOGL), after a court ruling determined the company monopolized the online search market, per a Bloomberg News report. This comes amid Alphabet's Pixel phone launch, which showcased its Gemini technology and positioned it as a leader in bringing artificial intelligence (AI) to smartphones.
GOOGL was last seen down 1.2% to trade at $162.20, after a rally off the 180-day moving average fell short of the $165 level. The stock has pulled back significantly from its July 10, all-time high of $191.75, but despite its 10.4% quarter-to-date deficit, it still sports a 16.8% lead for 2024.
Over at International Securities Exchange (ISE), Cboe Volatility Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GOOGL's 50-day put/call volume ratio sits higher than 97% of readings from the past year. This indicates traders have been more bearish than usual.
Drilling down to today's options activity, 54,000 puts have already crossed the tape, which is double the intraday average volume. The most popular contract is the August 160 put.
It's also worth noting the Alphabet stock sports affordably priced premiums. This is per the equity's Schaeffer's Volatility Index (SVI) of 25% that ranks higher than just 21% of annual readings.
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3 weeks ago
When You Look Back in 5 Years, You'll Wish You'd Bought This $2 Trillion Artificial Intelligence (AI) Stock
By: The Motley Fool | July 31, 2024
• When You Look Back in 5 Years, You'll Wish You'd Bought This $2 Trillion Artificial Intelligence (AI) Stock
Alphabet is one of the cheapest megacap technology stocks, despite being a leader in AI.
Alphabet (GOOG 0.75%) (GOOGL 0.73%) is the technology conglomerate behind Google, YouTube, autonomous driving company Waymo, and artificial intelligence (AI) developer DeepMind (to name just a few of its subsidiaries).
Google remains the dominant internet search engine globally, and it used that success to build other businesses like Google Cloud and Google Workspace (which includes Gmail and Google Docs). But as the window to the internet for over 20 years, Google Search is also a repository of some of the most valuable data in cyberspace, which gives Alphabet an incredible edge in the AI race.
Alphabet is already generating billions of dollars in revenue from AI specifically, and the best is probably yet to come. Its stock is very cheap based on one widely used valuation metric, and when investors look back on this moment in five years, they might wish they had bought it today.
Alphabet is weaving AI throughout its entire business
Google has a 91% global market share in the internet search industry, but it came under threat last year following the rapid adoption of OpenAI's ChatGPT. AI-powered chatbots can provide direct answers to almost any question, creating a more convenient experience compared to Google Search, which requires the user to sift through webpages to find the information they need.
It prompted Alphabet to launch its own family of AI models called Gemini, which power a new Google Search feature called AI Overviews. Overviews speed up the search experience by delivering text-based responses at the top of Google's traditional web results. They include reference links so the user can view the source of the information, and Alphabet says they are receiving more clicks than the links that appear in traditional search results. That could have positive implications for advertising revenue when AI Overviews roll out more broadly.
Gemini is also available in Google Workspace for an additional monthly subscription fee. It integrates into productivity applications like Google Docs, Sheets, Slides, and Gmail, allowing users to rapidly create content and speed up their workflows. One Workspace customer, Click Therapeutics, is using Gemini to analyze patient feedback to build digital treatment plans, and the use cases will likely expand further over time.
Google Cloud is another critical component of Alphabet's AI strategy. Like most top cloud providers, Google Cloud offers AI data center infrastructure fitted with chips from leading suppliers like Nvidia. However, Alphabet also designed its own chips in-house, and its new Trillium tensor processing unit (TPU) delivers 5 times more compute performance than the previous version.
Developers use that computing power to perform AI training and inferencing to deliver the most advanced AI models, so faster chips can translate into cost savings and higher-quality outcomes. Google Cloud also offers a library of ready-made large language models (LLMs), including Gemini, which developers can use to accelerate the creation of their applications.
Google Cloud just crossed a noteworthy milestone
Alphabet generated a record $84.7 billion in revenue during the second quarter of 2024 (ended June 30), a 14% increase from the year-ago period. Google Search remained the dominant part of the conglomerate, accounting for more than half of that revenue.
Google Cloud was the standout performer, though, because its sales grew by 29% to $10.3 billion. It was the first time the segment crossed the $10 billion mark, and AI played a key role in achieving that milestone. Alphabet said its AI infrastructure and solutions have already generated billions of dollars in revenue to date, with over 2 million developers currently using them.
Both of those numbers are likely to rise in the future as more businesses integrate the technology into their day-to-day operations.
Alphabet continues to carefully manage its costs to drive profitability. Its total operating expenses ticked up 8.6% during Q2, and since that was much slower than the pace of its revenue growth, more money flowed to the bottom line. As a result, the company's earnings per share soared 31% year over year to $1.89.
Capital expenditures are one thing investors are watching closely, because building AI infrastructure is incredibly expensive. Alphabet spent $13 billion on capital expenditures during Q2, and it expects to spend at least $12 billion per quarter for the rest of 2024. The company warned this could temporarily pressure its profit margins, but the long-term payoff from having more AI capacity could outweigh any short-term negatives.
Alphabet stock is cheap
Alphabet generated $6.97 in earnings per share over the last four quarters, and based on its stock price of $167.28 as of this writing, it trades at a price-to-earnings (P/E) ratio of 24. That is a 24.7% discount to the Nasdaq-100 index, which has a P/E ratio of 31.9, implying Alphabet is heavily undervalued compared to its big-tech peers.
Alphabet's P/E ratio is also the cheapest among every other company with a valuation of at least $2 trillion:
PE RATIO DATA BY YCHARTS
Nvidia, Microsoft, and Apple trade at an average P/E ratio of 45.2. That number is heavily skewed by Nvidia, so I'm not suggesting Alphabet stock will climb that high. However, it might be appropriate for the stock to rise 45% to trade in line with the average P/E ratio of Microsoft and Apple, which is 35.
After all, Alphabet's earnings growth of 31% during Q2 was substantially faster than what both Microsoft (8.9%) and Apple (13.5%) are forecast to deliver in their upcoming quarters. Plus, Alphabet might have an edge over both companies in the AI space, because they rely heavily on third-party developers like OpenAI for their AI software.
Simply put, besides the fact Alphabet is generating strong growth already with promising long-term potential thanks to AI, there is a clear case its stock should be trading much higher based on the valuations of some of its peers in the tech industry.
Therefore, when investors look back on this moment a few years from now, they might be glad they scooped up Alphabet shares at the current price.
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1 month ago
Alphabet Results to Set Tone for Big Tech on Advertising, Cloud
By: Bloomberg News | July 23, 2024
All eyes are on Alphabet Inc.’s earnings report to set the tone for how megacap technology companies fared in the second quarter.
Alphabet, which has gained more than 16% since its blowout first-quarter report, needs to show that spending on AI is continuing to drive revenue in its cloud and advertising businesses. The results also come on the heels of a broader tech selloff, with the Nasdaq 100 Index tumbling nearly 6% in just over a week. That, in addition to tough comparisons with last year, has created a cautious backdrop ahead of Tuesday’s earnings release.
“This isn’t the big acceleration quarter, but I think that they will do slightly better than consensus and give a good September guide,” said Rhys Williams of Wayve Capital Management LLC, adding that Alphabet needs to “directionally talk about what AI is doing to their overall revenue stream.”
Alphabet shares are up about 0.5% in early trading on Tuesday.
Wall Street analysts expect the company to report $84.4 billion in revenue in the second quarter, a 13% jump from the same period last year but marking a deceleration from last quarter. Advertising, which includes the search and YouTube businesses, is expected to bring in $64.5 billion, up 11% compared with last year, helped by Google’s AI improvements to search.
The results, and Alphabet’s guidance ahead of the Olympics and the November US Presidential election — two major events that should benefit ad spending — have read-through to companies including Meta Platforms Inc., Snap Inc. and Pinterest Inc.
Bank of America’s Justin Post expects the results to “set a positive backdrop” for peers. He recently boosted his second-quarter estimate for Alphabet’s search business. “In the near-term, we think revenue upside from AI-driven monetization improvements will be a key 2Q takeaway,” Post said.
Analysts will also be watching Google’s spending. Capital expenditure came in higher than expected last quarter, though Wedbush analysts led by Scott Devitt said that expectations for near-term capex have now “caught up to reality.”
“While a negative surprise related to spending remains a risk for Alphabet (and all of megacap internet), we think the chances are relatively low in 2Q,” Devitt wrote.
The company has spent significantly on developing AI services in its cloud business, which competes with Amazon.com Inc.’s AWS and Microsoft Corp.’s Azure. Cloud was one of the key factors behind Google’s first quarter beat, and Truist analysts led by Youssef Squali expect this quarter’s results to be supported by a sustained performance in cloud as well.
A solid report from Alphabet on cloud would have positive implications for Amazon, Microsoft and even Nvidia Corp., as it may signal that investments in AI chips will need to continue through next year.
Among other developments, this quarter will also mark the last before Anat Ashkenazi takes over as chief financial officer at the end of the month, replacing Ruth Porat. Investors will also be interested in M&A, after cybersecurity startup Wiz Inc. turned down a takeover bid from Google, according to a memo reported by Bloomberg today. Alphabet also recently shelved its pursuit of HubSpot Inc., a customer relationship management software maker, Bloomberg reported previously.
“We are looking for more details around “efficiency” as the theme was more prevalent in the April call and perhaps the new CFO, Anat Ashkenazi, will look to cut a bloated structure even further,” Melius Research analyst Ben Reitzes wrote in a recent note.
Reitzes noted that Google shares have been strong since its first-quarter report amid optimism around “costs, cloud momentum and improvement in AI execution.”
“Management needs to show real commitment to these themes for the stock to keep going,” he said.
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1 month ago
Alphabet to report double-digit Q2 growth; AI adoption, ballooning costs in focus
By: Reuters | July 22, 2024
Google-parent Alphabet is expected to report a nearly 14% rise in quarterly revenue, its fourth straight quarter of double-digit growth, driven by steady demand for its artificial intelligence-powered cloud computing services and an uptick in the ad market.
The search giant's second-quarter report on Tuesday, the first among the Big Technology companies this season, could offer further insight into the uptake of AI services, as well as the rising costs associated with the new technology.
At a developer conference in May, Google widely rolled out AI-powered summaries in Search and beefed up its Gemini AI model to better compete with services from OpenAI and Microsoft.
Google is also launching new Pixel devices with AI capabilities next month, moving forward its unveiling event, typically set in fall, after Apple announced in June a slew of AI capabilities and an integration with ChatGPT in the latest iPhones.
"Investors will be looking for continued success in Search, but also for signs of the company adapting to the new world of AI," said Gil Luria, senior software analyst at D.A. Davidson & Co.
"The company will need to show that AI is driving Google Cloud growth, that there are no share losses in Search as users start leaning more on AI chat, and that the new models being built are competitive."
Alphabet's AI investments will also be closely watched. In the January-March period, the company's capital expenditure jumped 91% to $12 billion, rattling some investors even though CEO Sundar Pichai assured that the AI integrations were boosting demand for its cloud and search businesses.
The company's operating expenses in the second quarter ended June likely rose more than 32% to $27.57 billion, according to LSEG data, the highest jump in over two years.
Investors will also have questions around reports that Alphabet is in talks to buy cybersecurity startup Wiz for roughly $23 billion and how that would affect its bottomline.
Alphabet's core businesses are likely to report healthy growth as an improving macro-economic climate gives customers the confidence to invest in cloud computing and spend on advertising.
"Google search spending still held up fairly well ... we think advertisers need to spend as a key offset to inflation," said RBC Capital Markets analyst Brad Erickson.
Media investment firm GroupM raised its 2024 global advertising growth forecast to 7.8% in June, from 5.3% in December, primarily on account of better-than-expected spending in China and the United States.
Analysts also expect strong performance at YouTube, thanks in part to expanded monetization features in its TikTok-styled video offering, Shorts.
Alphabet's second-quarter cloud computing sales and advertising revenue are expected to grow 26.4% and 10.8%, respectively, according to LSEG data, largely similar to the preceding two quarters.
Ad-dependent peer Meta Platforms will report its results next week on Wednesday, July 31.
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1 month ago
Google Nears $23 Billion Deal to Acquire Cybersecurity Firm Wiz: WSJ
By: Barron's | July 14, 2024
Alphabet GOOGL -0.27%’s Google is nearing a $23 billion deal for the cybersecurity firm Wiz in what could be the search giant’s largest acquisition ever, The Wall Street Journal reported.
A deal could come together “soon,” the report said, citing people familiar with the talks. Representatives for Alphabet and the Wiz didn’t immediately respond to a request for comment from Barron’s.
The acquisition would come amid heightened scrutiny in Washington of competition in the technology industry.
Wiz would add to Alphabet’s efforts in cloud computing. In May, the start-up said it raised $1 billion at a valuation of $12 billion in a funding round led by Andreessen Horowitz, Lightspeed Venture Partners, and Thrive Capital.
Wiz CEO Assaf Rappaport said then that “2024 is the year of consolidation—for Wiz, and the industry at large.” Money from the funding raise would be used in part for acquisitions, the company said in May. Wiz recently acquired Gem Security, a cloud detection and response firm.
Wedbush analyst Dan Ives told Barron’s in an email that a deal would be a smart strategic move for Google, “and a shot across the bow against Microsoft MSFT -0.25% and Amazon AMZN -0.29%.”
Google has been trying to catch up in the cloud computing space with Amazon and Microsoft. Two years ago, Google bought another security firm Mandiant for $5.4 billion.
But the company also faces antitrust scrutiny from regulators, especially in its search business. It is awaiting the outcome of a Justice Department lawsuit over the methods it used to boost its internet search business, and it also faces claims of unfair practices in its ad-tech business.
While the Biden administration’s Federal Trade Commission has been forcefully going after anticompetitive practices in the tech industry, a change of administration to a Republican president could shift things, Ives said.
Should former President Donald Trump win the election in the fall and return to the White House, “we would expect a very weak FTC and tech deals to accelerate,” Ives said.
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2 months ago
2 Outperforming Big Tech Stocks to Buy This Quarter
By: Schaeffer's Investment Research | July 3, 2024
• Apple and Alphabet tend to outperform in the third quarter
• Plus, 23 other stocks that could deliver big gains
Big Tech stocks have had a stranglehold on the stock market so far in 2024, and this summer could be no different. Two stocks in particular, Apple Inc (NASDAQ:AAPL) and Alphabet Inc Class A (NASDAQ:GOOGL), are poised to extend their ascents.
Per Schaeffer's Senior Quantitative Analyst Rocky White, AAPL and GOOGL made the list of 25 best-performing S&P 500 Index (SPX) stocks to own this quarter, historically, in the past 10 years. Apple boasts an average quarterly return of 7.6%, with an 80% win rate, while the Google parent is higher 6.8% of the time and has finished the quarter higher nine times in the last decade.
Apple stock was last seen trading at $219.55, just below yesterday's record close of $220.38. The shares are 14.3% higher so far in 2024, with support stepping up at their 20-day moving average before a 6% post-earnings bull gap in early May. On the chart below, note the bullish flag pattern that preceded yesterday's 1.6% gain.
GOOGL is trading at $185.24 at last check, a chip shot from its June 27 record high of $186.05. Compared to AAPL, Alphabet shares are up a much more robust 32.1% this year, and also sport a 53.57% year-over-year lead amid a channel of higher highs.
Both equities sport attractively priced premiums at the moment, per their respective Schaeffer's Volatility Indexes (SVI) that sit in the bottom 25th percentile of their annual ranges. Where they differ is that AAPL's Schaeffer's Volatility Scorecard (SVS) sits at 79 out of 100, suggesting the security has tended to exceed options traders' volatility expectations during the past year. GOOGL's SVS, meanwhile, sits at 7, making the equity an intriguing premium-selling candidate.
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2 months ago
Where Will Alphabet Stock Be in 3 Years?
By: The Motley Fool | July 1, 2024
Share prices of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have outperformed the Nasdaq-100 Technology Sector index over the past three years, delivering gains of 51% as compared to the 26% gains clocked by the index. However, investors might expect more from the search engine leader thanks to the emergence of new catalysts.
Let's take a closer look at what's likely to supercharge Alphabet's growth over the next three years and see if it can help the stock deliver stronger gains.
Alphabet is growing at a faster pace this year
Alphabet finished 2023 with revenue of $307.4 billion, an increase of just 10% from the previous year. Revenue had a compound annual growth rate of 19% between 2020 (when it reported $182.5 billion) and 2023. Its growth dipped last year because of a slowdown in the digital advertising market.
While several rivals reported AI breakthroughs, the setbacks Alphabet encountered in trying to jump onto the artificial intelligence (AI) bandwagon also contributed to Alphabet's performance drop. For instance, Meta Platforms delivered impressive growth last year and cornered more share of the digital ad market by integrating AI tools into its advertising and social media platforms.
The good news for Alphabet investors is that it has started 2024 on a brighter note. Revenue in the first quarter of the year increased 16% year over year to $80.5 billion. Net income also increased 61% to $1.89 per share.
AI seems to be playing an important role, with Alphabet offering improved AI tools to advertisers to help drive better returns on their investments. For instance, the company has integrated its Gemini AI model into its Performance Max (PMax) ad campaigns, and this seems to be driving advertisers' returns. On its April earnings conference call, management said that advertisers using PMax asset generation are 63% more likely to publish a campaign with good or excellent ad strength.
Management also said that advertisers using generative AI to create ad components such as headlines and product descriptions saw a 5% improvement in conversions without any increase in costs. The company's focus on bringing AI to its ad tools could pay off big time since advertisers are expected to spend $107 billion on AI-based marketing in 2028 as compared to $15 billion in 2021.
AI is also giving Alphabet's Google Cloud a lift. Cloud revenue increased 28% year over year in the first quarter to $9.6 billion, with cloud-based AI services gaining impressive adoption among customers.
Alphabet says that it has added over 1,000 new products and features to Google Cloud in recent months, and this seems to have helped it gain ground. The company's share of the cloud computing market increased by a single percentage point in the first quarter on a year-over-year basis to reach 10%.
That might not sound like a huge improvement, but Google Cloud is the third-largest cloud infrastructure provider behind the likes of Microsoft and Amazon, which together control 56% of this market. So if Google manages to claw away share from its rivals, its cloud revenue could keep improving in the long run.
The market for cloud-based AI services is expected to generate $274 billion in annual revenue in 2029 as compared to $67 billion this year, according to Mordor Intelligence. And Alphabet has a couple of solid catalysts with its AI-powered advertising and cloud computing that could help its growth accelerate.
Healthy growth seems to be in the cards for the next three years
Alphabet finished 2023 with earnings of $5.80 per share. The following chart tells us that its bottom line could increase by 30% in 2024, which would be an acceleration over the 27% growth it recorded last year.
Analysts have increased their outlook for Alphabet for the next couple of years as well. A look at the chart above shows Alphabet's 2026 earnings growth is expected to be healthier than its projected rate for 2025. And Alphabet could end up beating the projections thanks to the catalysts discussed. But even if Alphabet's earnings increase to $9.82 per share and the company maintains its current price-to-earnings ratio of 28 at that time, its stock price could jump to $275. That would represent 49% growth from current levels.
The earnings multiple used here is a conservative one; the U.S. technology sector has an earnings multiple of 47, and tech stocks whose growth is being fueled by AI tend to command richer multiples.
So if Wall Street decides to reward Alphabet stock with a richer multiple, there is a good chance that it could deliver stronger gains over the next three years than what's estimated above. That's why investors looking to buy an AI stock that's trading at a relatively attractive valuation should consider taking a closer look at Alphabet.
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2 months ago
Alphabet (GOOGL) key technical moments
By: David Keller | June 28, 2024
In Alphabet, we see a stock very clearly in a primary uptrend of higher highs and higher lows. Can GOOGL sustain the strong bull phase from Q2 into Q3? With this sort of technical configuration, I'm watching the pullbacks to see if GOOGL can keep making higher lows. My mentor Ralph Acampora would remind me to focus on higher lows in an uptrend, because, as long as the lows keep getting higher, the uptrend appears to be in good shape.
I'm also watching the RSI, which has been above 50 since mid-March. Strong charts have strong momentum, and RSI remaining above 50 would tell me that Alphabet is still in a position of strength among the largest US stocks.
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