We may have been overly cautious about Alphabet (NASDAQ:GOOG) ahead of earnings, but the latest from the Google and YouTube parent has increased our confidence in the long-term prospects of Alphabet stock.
The reasons for this go beyond just the fact that the company’s latest quarterly results handily beat sell side forecasts. Alongside promising statements from management, there was another positive take-away for investors.
GOOG surged on earnings, hitting a new all-time high. The stock has reached a new market cap milestone: $2 trillion. That said, after this latest spike in price, it may take some time until the next one arrives.
Shares are also slipping, suggesting that the stock could in the near-term cough back a fair chunk of these post-earnings gains. Don’t jump to the conclusion that now is the time to sell.
Alphabet Stock and its Latest Earnings Release
Post-market on April 25, Alphabet released results for the quarter ending March 31, 2024. As InvestorPlace Earnings reported, revenue during Q1 2023 came in at $80.5 billion, ahead of analyst consensus of $78.6 billion. Earnings per share came in at $1.89, well ahead of consensus calling for earnings of $1.51 per share.
On a year-over-year basis, these results represented 15% revenue growth, and around 61.5% earnings growth. During the quarter, each of the company’s three key operating segments performed well, including Google Cloud.
Google Cloud’s revenue grew 28% year-over-year, and operating earnings surged more than fourfold compared to Q1 2023.
Google CEO Sundar Pichai and CFO Ruth Porat both provided promising statements about how the company’s efforts with commercializing its Gemini generative AI large language model, in addition to its cost efficiency efforts, are helping to drive such stellar results.
As mentioned above, besides assuaging concerns and reiterating that Alphabet has a bright future ahead, there was another fantastic announcement in the earnings release.
That would be Alphabet’s plans to both add $70 billion to its share repurchase program, as well as begin paying out a quarterly cash dividend.
There’s Now Even More Reason to be Bullish
Given the degree of positive news provided in the earnings release, it’s not surprising that Alphabet stock jumped nearly 10% higher immediately after.
Still, last week’s positives surprises may not necessarily keep GOOG on an upward trajectory. In fact, with the stock already pulling back, it’s possible that the market is “selling on the news.”
So, does that mean you should follow their lead? Not so fast. At least, considering that there’s now even more reason to be bullish. How so? For starters, based on last quarter’s results, digital advertising demand continues to strengthen.
Cloud growth continues to carry on at an elevated pace, and the company’s rollout of Gemini could further boost the appeal of Google Cloud over its competition. Based on these factors alone, Alphabet appears poised to continue beating sell side consensus.
In turn, this suggests that results could hit the high end of forecasts, not just this year ($8.17 per share), but next year as well ($9.81 per share). Even if the stock fails to benefit much from multiple expansion, an EPS climb to nearly $10 per share would undoubtedly justify prices ranging from $200 to $250 per share.
The Verdict: A Solid Choice to Buy and Hold
The generative AI growth trend may endure for years to come. Earnings growth could continue to come in at a 15-20% clip, and GOOG could move upward, in tandem with this steadily growing bottom line.
Still, high-growth won’t last forever. At some point, things will slow back down. However, Alphabet’s return of capital efforts could make up for this.
GOOG’s dividend, which gives it a tiny 0.12% forward yield , could in time grow significantly, and become a major contributor to total returns. Aggressive share repurchasing will also help to keep the needle moving.
Again, it may not be until the next earnings release, or the next release of AI-related updates, that Alphabet stock bolts higher again. However, with plenty in place to keep it an above-average performance, consider it a solid choice to buy and hold in your portfolio.
Alphabet stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
