With the artificial intelligence (AI) boom in full force, investors continue to try and figure out ways to get a piece of the action. Luckily, you don't have to look very far.
Alphabet (GOOG 0.72%) (GOOGL 0.33%), one of the world's most dominant enterprises, is at the forefront of this revolution. After it released 2024 first-quarter financials that were well-received by the market, shares continued their upswing. They are now up 59% in just the last 12 months.
This leading internet company is now valued at more than $2 trillion. Let's take a closer look at its recent financials, attractive qualities, and the stock's valuation.
Looking at the latest results
Wall Street loves to focus on headline figures, such as revenue and earnings per share. Alphabet crushed expectations here. The top line came in at $80.5 billion, up 15% year over year. The bottom line increased 62% to total $1.89 per share. This is just the latest report that demonstrates the company's ability to maintain its strong fundamental performance.
All of Alphabet's segments did well. Ad revenue was up 13%, driven by a solid showing in Search and YouTube. This is an extremely encouraging trend to see, given that the ad industry was struggling in 2022. These days, the ad market is on much better footing.
What makes Alphabet a fantastic AI stock, however, is its Google Cloud division. This segment already offers clients a laundry list of AI features in areas like generative AI, machine learning, image and video, data, and consulting. Google Cloud, which posted a Q1 revenue jump of 28% and operating income of $900 million, is becoming a leading AI infrastructure provider.
NASDAQ: GOOGL
Key Data Points
So many favorable qualities
It's not surprising that for Alphabet to get to the current $2 trillion valuation, it must possess some very attractive qualities. One such factor that can't be ignored are the powerful long-term tailwinds that have worked in the company's favor.
Of course, the rise of smartphones and the internet in the past decade or more has propelled Alphabet to become the so-called gateway of the internet. Greater internet usage, with a corresponding greater number of internet users, results in a heightened ability for the business to monetize this activity via ads. And the popularity of streaming video has made YouTube a global entertainment powerhouse.
Going back to the topic of AI, there might be no business that's better positioned to take advantage of how this technology progresses. For starters, Alphabet has unmatched financial resources to the tune of $95 billion in net cash on the books and consistent free-cash-flow generation to invest heavily in researching, developing, and launching AI tools. It helps that the company's operating margin has averaged a superb 26.2% in the past five years.
But perhaps even more noteworthy, Alphabet has numerous products and services that are used by hundreds of millions and even billions of people. This gives the business an invaluable avenue by which to release these AI capabilities that can be used immediately by customers, helping drive greater revenue potential.
The valuation remains compelling
Investors will probably be surprised to know that this stock still looks inexpensive, even after its recent run-up. Shares trade at a forward price-to-earnings ratio of just 22.2.
If you decide to pay this valuation, you'd be getting one of the world's dominant enterprises, one that's incredibly profitable, has growth potential, is at the forefront of AI, and that owns some of the world's most popular services. Plus, it doesn't hurt that Alphabet just announced a new $70 billion share-repurchase program or that the business will now pay a $0.20 quarterly dividend to shareholders.
Even as it currently sits in the exclusive $2 trillion club, investors should still consider buying Alphabet stock today.
