Although Alphabet (GOOG 0.80%) (GOOGL 0.86%) briefly eclipsed the $2 trillion threshold in late 2021, it hasn't returned to that level since. For Alphabet to return to that exclusive club by next year, it would need to return 18%. While that's not a high threshold, Alphabet has a few hurdles to overcome before achieving and maintaining a $2 trillion valuation.
So, can Alphabet do it by 2024? Or will it be left outside the $2 trillion club? Let's find out.
Alphabet is working to solve many of investors' concerns
Although some of Alphabet's business segments such as cloud computing get a lot of publicity, 78% of revenue came from advertising sources -- but this segment isn't growing quickly. Thanks to businesses tightening their advertising budgets, Alphabet hasn't seen meaningful growth in the segment. In the second quarter of 2023, revenue was only up 7% year over year, with advertising's 3% growth dragging down the total. However, this is likely temporary.
Alphabet owns two of the most popular platforms around: Google and YouTube. Both are category leaders, and YouTube has the greatest share of U.S. daily screen time among streaming platforms. The popularity of these two products will likely make them some of the first places advertisers increase their spending. However, it's unknown when the economy will recover enough for this spending to return, so this may continue to be a headwind into 2024. But, with Wall Street analysts projecting Alphabet's revenue growth to be 11% in 2024, it indicates that advertising revenue should return to some extent.
Another problem investors have highlighted with Alphabet is its operating expenses. In 2022, Alphabet was hiring anyone it could, which caused its expenses to rise substantially. Alphabet went through a few rounds of layoffs earlier this year to counteract this rise. Still, Alphabet's employee count has risen by nearly 8,000 since last year. But through diligent spending, Alphabet managed to keep its operating expenses flat year over year in Q2, which allowed it to increase its operating profit by 12%.
So, with Alphabet looking like it can conquer two primary issues, the stock looks well set up for 2024. But there's also a lot to be excited about.
Cloud computing will provide Alphabet a boost in 2024
Artificial intelligence (AI) is a massive trend in cloud computing and standard business operations, and Alphabet's Google Cloud currently holds a third-place position in terms of market share. The total market opportunity for cloud computing is about $678 billion currently but is expected to rapidly grow to $2.4 trillion by 2030. With Alphabet having a strong foothold in this massive opportunity, this segment will continue to boost Alphabet's results just like it did in Q2, when it grew 28%. Furthermore, Google Cloud became profitable in 2023 and will likely continue to increase its profitability throughout the coming year, boosting Amazon's overall profits.
These factors should add up to increased earnings per share (EPS), which would decrease Amazon's valuation if the stock price stayed the same. However, with Alphabet trading around its average price-to-earnings valuation, it's not overpriced, either.
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Yet because Amazon's not overvalued, business results should translate directly into stock price movements. With revenue and EPS expected to grow by 11% and 18%, respectively, in 2024, I think it's reasonable to bet that Alphabet can be a $2 trillion company by 2024.
