On Friday, Alphabet Inc. closed with a market capitalization of more than $2 trillion for the first time, thanks to a strong earnings report that reassured investors that Google's parent company will become a major player in artificial intelligence.
Shares rose 10% to $171.95, the biggest single-day gain since July 2015, giving the company a valuation of $2.15 trillion. The prepayment added about $200 billion to the company's market capitalization, making it one of the largest single-day value additions in stock market history. The stock has increased 23% this year, compared to a 5.3% rise in the Nasdaq 100 index.
The $2 trillion milestone comes after the company reported higher-than-expected revenue due to strong performance in its cloud computing division. Growth in AI is accelerating demand for cloud, while Alphabet also encouraged investors by introducing a dividend and announcing a $70 billion stock buyback program.
Wayne Kaufman said: “Alphabet is very well run, its free cash flow is absolutely amazing, and it has a huge R&D budget. So which company will have the best AI products? “No one knows for sure, but it's hard to bet on that.” , Chief Market Analyst at Phoenix Financial Services.
The stock has topped the $2 trillion mark on an intraday basis in 2021 and earlier this month, but this is the first time Alphabet has closed above that level. In doing so, this company enters rare territory. Only Apple Inc., Microsoft Corp., Saudi Aramco, and Nvidia Corp. exceeded this threshold. Driven by huge demand for its AI chips, Nvidia's sales topped $2 trillion earlier this year, while Amazon.com itself is nowhere near $2 trillion.
The road to $2 trillion was somewhat bumpy. The stock price has been volatile amid some high-profile criticism of the company's AI products, and before the latest report was released, some investors had been investing heavily in the space for years. Despite this, many had doubts about the company's ability to compete with companies like OpenAI in this important space.
Wall Street remains broadly positive on the stock, with nearly 85% of analysts tracked by Bloomberg recommending a buy. Both revenue and sales are expected to grow at double-digit rates annually through 2026.
Furthermore, stock prices continue to appear undervalued. The stock is trading at approximately 23.5 times its estimated PER, making it one of the cheapest of the so-called Magnificent Seven. The stock trades at a discount to the Nasdaq 100 and only slightly above its 10-year average multiple.
(issued April 27, 2024, 10:39am IST)
