Google’s parent company Alphabet enters the $2 trillion club as its results highlight the strength of AI.
On Friday, Alphabet’s stock surged by 10 percent, increasing the company’s market capitalization by nearly $200 billion, marking its largest single-day gain since July 2015.
On Friday, Alphabet Inc. firmly surpassed a $2 trillion market capitalization for the first time, buoyed by robust earnings that underscored its position as a significant player in artificial intelligence. The stock surged by 10% to $171.95, marking its largest single-day gain since July 2015 and pushing its valuation to $2.15 trillion. This increase resulted in nearly $200 billion being added to the company’s market capitalization, making it one of the most substantial single-day value additions in stock market history. Year-to-date, Alphabet shares have climbed by 23%, outperforming the 5.3% gain of the Nasdaq 100 Index.
The achievement of the $2 trillion milestone came on the heels of Alphabet’s earnings report, which surpassed revenue expectations driven by the strength of its cloud-computing division. The demand for cloud services was propelled by the growth in AI, further bolstering investor confidence. Additionally, Alphabet pleased investors by announcing a dividend and unveiling a $70 billion buyback program.
Wayne Kaufman, chief market analyst at Phoenix Financial Services, remarked, “Alphabet is tremendously well managed, its free cash flow is absolutely astonishing, and it has a massive R&D budget, so while no one knows what company will have the best AI products, this is a tough one to bet against.”
While Alphabet’s stock briefly crossed the $2 trillion mark during trading sessions in 2021 and earlier this month, this marks the first time it has closed above this milestone. This achievement places Alphabet among a select few companies, including Apple Inc., Microsoft Corp, Saudi Aramco, and Nvidia Corp., that have surpassed the $2 trillion threshold. Nvidia, driven by soaring demand for its AI chips, achieved the $2 trillion mark earlier this year, while Amazon.com Inc. is also nearing the $2 trillion mark.
The journey to $2 trillion has been somewhat tumultuous. The stock has experienced volatility, particularly amidst notable criticism regarding the company’s AI offerings. Prior to the latest earnings report, some investors had expressed doubts about Alphabet’s ability to compete with firms like OpenAI in this crucial area, despite its significant investments in AI over the years.
Nevertheless, sentiment on Wall Street towards the stock remains largely positive, with nearly 85% of analysts tracked by Bloomberg recommending buying. Both earnings and revenue are anticipated to experience double-digit growth annually through 2026.
Furthermore, the stock appears to offer good value. Trading at approximately 23.5 times estimated earnings, it is considered one of the more affordable options among the so-called Magnificent Seven. Additionally, the stock is priced at a discount compared to the Nasdaq 100 and is only slightly higher than its average multiple over the past decade.
