Could Alphabet Stock Be the Key to Millionaire Status?

Published May 19, 2024

With its roots dating back to 1998 as the then-named Google, Alphabet (GOOGL 1.08%) (GOOG 1.06%) has evolved into an industrial colossus, orchestrating a portal to the digital world and securing billions of devoted users. Alphabet has leveraged this extensive audience to diversify into an array of sectors, including but not limited to digital ads, cloud services, smartphones, and productivity tools.

The company's trajectory showcases impressive quarterly revenue, operating income, and stock price growth since 2019. Indications are that Alphabet is far from peaking, with its prosperous ad business and encouraging prospects in various other domains. This holds the promise of significant long-term rewards for new investors.

Digital Ads: The Engine Behind Alphabet's Success

Alphabet's proprietary brands like Android, YouTube, Chrome, and the plethora of Google products create a virtually infinite canvas for advertising possibilities. This prowess in harnessing attention has furnished Alphabet with a dominant 26% slice of the digital advertising pie—an industry anticipated to surge to $740 billion in spending this year.

Contributing around 80% to Alphabet's top line, digital advertising stands as its lifeblood. Despite setbacks in 2022 due to economic turbulence and advertising cutbacks, recent performance reflects resilience and prospects of future success. The Q1 2024 earnings outdid expectations, indicating a hearty 15% increase in revenue and a striking 28% jump in operating income for its Google Services segment, owing to a 14% bump in ad sales.

Alphabet's AI Aspirations: Beyond Advertising

Not content with resting on its advertising laurels, Alphabet is steering towards artificial intelligence (AI) to sustain its edge, matching strides with tech titans like Microsoft and Amazon. Introducing innovative AI tools to its Google Cloud repertoire and debuting an AI model named Gemini, Alphabet is gradually solidifying its standing in AI, despite initial hesitance from industry analysts and a rocky start with Gemini.

The first-quarter earnings of 2024 paint a brighter picture, with Alphabet's Google Cloud generating 28% more revenue and a 371% surge in operating income, topping at $900 million. Furthermore, Alphabet is infusing AI into its advertising domain for cost-effective and enhanced ads and has announced a significant overhaul of Google Search, incorporating generative AI features aimed at refining direct customer responses.

Management's Vote of Confidence

In a strong show of faith, Alphabet management declared a stock buyback initiative worth $70 billion and revealed plans for issuing a $0.20 per share dividend on an earnings call. This confidence echoes the step undertaken by advertising peer Meta Platforms. With $69 billion in free cash flow dwarfing Meta's $50 billion, Alphabet appears better positioned to maintain dividends and invest in future growth.

Furthermore, comparative analysis shows that Alphabet stands as a relatively undervalued entity in AI and cloud markets when pitted against the likes of Microsoft and Amazon. The financial metrics hint at Alphabet's stock being a potential bargain within its sector.

Considering Alphabet's flourishing ad enterprise and its exciting AI ventures, the company's shares seem poised to drive investor wealth, potentially turning stockowners into millionaires.

Alphabet, AI, investment