By Jack Denton
Did you forget about Alphabet?
The investor frenzy over artificial intelligence has put much of the spotlight on Nvidia, Microsoft, Meta, and even Super Micro -- with the stock in Google parent Alphabet lagging some others in Big Tech amid worries that AI could hurt its key Google Search moneymaker.
But Alphabet appeared to placate some of those worries and more with its latest quarterly results. It reported earnings late Thursday that smashed expectations, helped by strong growth in its core search and advertising business as well as tailwinds in cloud computing from artificial intelligence demand.
Shares in Alphabet soared 12% in premarket trading Friday, after the stock closed at $156 on Thursday with the company's market capitalization at $1.95 trillion. The move implied by the shares in the premarket suggests that Alphabet will add $220 billion in value to its market cap, which is poised to top $2.1 trillion.
That would make the Google parent more valuable than chip maker Nvidia -- the poster child of the AI investing craze.
Alphabet posted earnings of $1.89 a share on revenue of $80.5 billion, blowing past Wall Street's expectations of earnings at $1.51 a share on revenue of $78.7 billion. The beat was driven by revenue in Google Search and other advertising sales of $46.2 billion -- above estimates of $45 billion -- with Google Cloud revenue of $9.6 billion up 28% year over year and beating forecasts of $9.4 billion.
"Our results in the first quarter reflect strong performance from Search, YouTube and Cloud," CEO Sundar Pichai said in a statement. "Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation."
Nikhil Lai, an analyst at Forrester, noted that the strong revenue in both search and in Alphabet's YouTube division signals "that uncertainty about how to monetise conversational search and brand media's measurement challenges aren't yet impacting Alphabet's bottom line."
Others on Wall Street agreed.
"Rumors of Alphabet's demise greatly exaggerated," Wedbush analyst Dan Ives wrote in a note, highlighting the accelerating growth in cloud with a larger contribution from AI. "We think [first quarter] results further validate Google's position as a leading AI beneficiary as management commentary directly addressed the structural risks of generative AI on the Search business." Wedbush rates Alphabet at Outperform with a $205 price target on the shares, which are on its list of best stock ideas.
The bull case for Alphabet here is that core drivers of revenue -- online search and advertising -- remain intact and even better than expected amid pressures from AI, which is also providing a boost to its cloud business. Alphabet may be having its cake and eating it too.
Write to Jack Denton at jack.denton@barrons.com
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(END) Dow Jones Newswires
April 26, 2024 09:39 ET (13:39 GMT)
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