CA - Alphabet's Clear Plan To Monetize AI: Why I'm Reiterating My Buy Rating

2024-05-03 12:04:41 ET

Summary

• Alphabet's market cap exceeds $2 trillion after strong Q1 earnings, with revenue and EPS beating estimates.
• The company has a clear plan to monetize AI, focusing on research leadership, infrastructure, innovation in search, and global product reach.
• Alphabet's valuation suggests the stock may be slightly overvalued based on P/S ratio but undervalued based on P/E ratio and shareholder yield.

Alphabet ( GOOGL ) ( GOOG ) recently reached another milestone when its market cap exceeded $2 trillion for the first time on April 26, the day after it reported first-quarter 2024 earnings. When I last discussed Alphabet, I recommended that investors buy the stock after its third-quarter 2023 post-earnings dip. Since then, the stock has been up 34.90% compared to the S&P 500's 23.60% rise. The company's rock-solid first quarter is why I believe further upside exists.

The company grew revenue 15% year-over-year, beating analysts' first-quarter estimates by 2.3%. Management also showed they could make the company more efficient and reduce costs, leading to margin expansion and beating analysts' earnings-per-share ("EPS") estimates by 25%. Following the results, Wall Street analysts only modestly raised their FY 2024 revenue estimates by 1% to $346.16 billion but raised FY 2024 earnings estimates by 10.6% to an EPS of $7.52. ...

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