Alphabet Inc (NASDAQ: GOOG), the parent company of Google, continues to dominate the tech landscape with its unparalleled prowess in digital innovation and robust financial performance.
In the first quarter of 2024, Alphabet showcased its unyielding strength across key segments, propelling its revenue to $80.54 billion, a remarkable 15% increase from the previous year. This surge marked Alphabet’s fastest growth rate since early 2022, underscoring its resilience amidst dynamic market conditions. Moreover, Alphabet’s proactive measures to enhance shareholder value include its first cash dividend of 20 cents per share and a substantial $70 billion share buyback program.
Source: Trive – Koyfin, Nkosilathi Dube
Investors responded enthusiastically, sending Alphabet’s stock price soaring 10% and propelling the company’s market value above $2 trillion for the first time. With a 20% share price gain year-to-date, Google has outpaced the growth of its tech counterparts, represented by the Nasdaq100 Index. Alphabet’s strategic initiatives, particularly its investments in artificial intelligence (AI) research and infrastructure, have fortified its position as a trailblazer in the tech industry. CEO Sundar Pichai emphasized Alphabet’s leadership in AI innovation, leveraging generative AI features to enhance user experiences across its platforms.
Technical
Google’s stock has been riding high on a wave of positive earnings and the announcement of its first dividend, marking a significant milestone in its financial journey. Trading in an uptrend, the stock has surged above its 100-day moving average, reaching an all-time high of $176.42 per share. Robust buying volumes fueled this remarkable ascent, as the price found support at $152.77 per share prior to earnings.
However, despite the euphoria surrounding the earnings results, overbought conditions signalled by the Relative Strength Index (RSI) at the peak price triggered profit-taking, leading to a temporary slowdown in bullish momentum. Subsequently, increased bearish volumes prompted a retracement in the share price, with the stock pulling back towards the 38.20% Fibonacci level.
Looking ahead, if bearish sentiment persists in the short to medium term, opportunistic investors may eye key Fibonacci retracement levels, such as the 50% and 61.80% Golden Ratio levels, for potential entry points. A resurgence of buying interest could see the $176.42 per share resistance level act as a focal point for further upside potential, should buyers outweigh sellers.
Fundamental
Google’s parent company, Alphabet, delivered a stellar first quarter, exceeding analyst expectations by a wide margin. Revenue surged 15% year-over-year to $80.5 billion, fueled by strong performances across its core businesses.
Source: Trive – Alphabet Inc, Nkosilathi Dube
The traditional cash cow, Google Services, reported a 14% increase in revenue, reaching $70.4 billion. This growth reflects a resurgence in Google Search and YouTube advertising, indicating a potential rebound in the digital advertising market after a period of uncertainty.
However, the real star of the show was Google Cloud. This segment, often overshadowed by its established siblings, soared 28% to $9.57 billion in revenue. This significant jump suggests the cloud business is finally maturing and turning a profit, putting Google in a strong position to compete with industry giants like Amazon Web Services and Microsoft Azure.
This success translates directly to the bottom line. Net income for the quarter skyrocketed by an impressive 57% to $23.66 billion. This financial strength allows Alphabet to reinvest heavily in its future.
Source: Trive – Reuters, Nkosilathi Dube
One key area of investment is artificial intelligence (AI). Google’s capital expenditure jumped to a staggering $12 billion, surpassing analyst forecasts. Major competitors like Microsoft and Meta spent $14 billion and $6.4 billion, respectively, underscoring Google’s commitment to staying at the forefront of AI development, a technology with the potential to revolutionize every facet of its business.
Looking ahead, Alphabet expects to maintain its momentum, projecting continued growth in operating margins and capital expenditures throughout the year. The $12 billion spent in Q1 represents a baseline, with further investment likely as Google continues to upgrade its technological infrastructure to capitalize on the vast opportunities presented by AI.
Source: Trive – Koyfin, Nkosilathi Dube
Google stands out among the Magnificent seven stocks with its relatively modest price-earnings ratio (PE Ratio) of 25.6×, notably lower than its elite counterparts’ 42.6× average PE ratio. Despite its lower valuation, Google boasts robust growth and substantial investments in artificial intelligence (AI), rivalling or even surpassing some of its peers in the Magnificent 7. This discrepancy between Google’s valuation and its formidable growth potential suggests that its shares could be viewed as undervalued in comparison to its peers. With Google’s unwavering commitment to innovation and strategic investments in AI, investors could find compelling opportunities for long-term growth potential at a relatively attractive valuation.
Summary
With its core businesses firing on all cylinders, Google appears well-positioned to dominate the tech landscape for years to come. Google’s exceptional first-quarter performance, marked by robust revenue growth and a landmark $2 trillion market valuation, positions it as a formidable force in the tech industry. Despite recent price retracement, key technical levels at $152.77 support and $176.42 resistance hint at continued bullish sentiment.
Sources: Alphabet Inc, Reuters, CNBC, Financial Times, Koyfin, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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