Shares of Alphabet (GOOG 1.02%) (GOOGL 1.10%) surged to new highs following its first-quarter earnings report. The company posted double-digit growth in revenue and earnings, driven by Search, YouTube, and Cloud. Alphabet also announced its first quarterly dividend of $0.20 per share and a new $70 billion share repurchase plan.
JPMorgan was one of several analysts raising their price targets. The firm upped its price target from $165 to $200 and kept an overweight (buy) rating on the shares. Alphabet's momentum, shareholder-friendly capital returns, and fair valuation could certainly justify new highs for the shares.
Why buy Alphabet stock?
Alphabet is proving it can invest in artificial intelligence (AI) and grow profits. The company rolled out the new Gemini 1.5 Pro version of its AI model in the quarter, while net income jumped 57% year over year to over $23 billion. Management is delivering on the bottom line even as it builds a world-class technology infrastructure for AI.
JPMorgan analysts believe Alphabet might have the most diversified strategy for monetizing AI among the leading players. New AI features are benefiting Google's advertising and cloud businesses, but it also has over 100 million subscribers to Google One, which allows members to use Gemini AI in Gmail and other products. Monetizing AI across ads, cloud services, and subscriptions gives Alphabet multiple ways to profit and deliver returns to shareholders.
Even after the post-earnings jump, the shares are still trading at an average forward price-to-earnings ratio of 23.5. A $200 share price in the near term would still put the stock at a fair valuation, given its strong earnings growth and opportunities in AI.
