It's earnings season, and that means that investors are keenly interested in what the big tech behemoths are doing. Alphabet (GOOG) (GOOGL) just reported earnings and reported numbers that most on Wall Street (and Main Street) viewed positively.
With its 11th consecutive quarter of double-digit growth and operating income surging 30% on a year-over-year (YoY) basis, there's a lot to like about how Alphabet is positioned right now.
Let's dive into why this search giant is seeing such strong growth in the face of what some investors see as a dire headwind on its way (ahem, artificial intelligence) and why many expect this growth path to continue.
Blowout Earnings Ease Investor Concerns
With total revenue rising more than 20% and Search specifically gaining 19%, this growth rate at Alphabet's impressive size is really a thing of beauty. As has been the case for years, the company's cloud division continues to drive forward momentum for investors. Alphabet's cloud division grew revenues 63% relative to the same quarter the year prior, which led to an astronomical surge in net income of more than 80%.
Indeed, it should be no surprise to many that GOOG stock soared on the news, surging roughly 9% following the release of its earnings. And despite this surge, GOOG stock continues to hover around 30 times earnings. That's a relatively steep price to pay for most stocks, but not for companies that can grow earnings at an 80%+ rate.
With a host of AI investments of its own, Alphabet is looking to thread the needle in a quickly changing technology landscape. So far, the company appears to be doing just that, with all major divisions seeing double-digit gains outside the Google Network (which declined 3.9%).
Now, that is meaningful, but it's not enough to change the trajectory of a giant ship powered by the cloud (and other bets on the future of AI, autonomous vehicles, and plenty of other high-growth business segments).
As such, it should be no surprise that Wall Street analysts remain bullish on the Google parent.
Just How Bullish Are Analysts on Alphabet?
Wall Street analysts seem to believe in the ability of Alphabet and its management team to grow earnings at an outsized rate, and so do market participants. Thus, with a $409.28 consensus price target on GOOG stock, there's at least 7% upside from current levels (according to the experts making these predictions). I'd argue that this price target is more likely than not heading higher over the near term as analysts revisit their models.
There's no shortage of mega-cap tech stocks to own right now. That's for sure. But in terms of companies with wide moats, exposure to new technologies, and a bright future driven by artificial intelligence and other key trends, Alphabet remains a top stock I continue to tout as a buy.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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