Google parent company Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) just delivered the earnings report that drove Alphabet stock up 10% the day after its first-quarter print was announced, bringing its year-to-date gain to 25%. GOOGL stock rebounded after setbacks with AI products, and Alphabet’s Q1 earnings redeemed itself.
Alphabet stock is now at an all-time high and the company’s market capitalization just closed above $2 trillion for the first time.
Ads, Cloud Computing and Alphabet Stock
Alphabet’s latest print contained great news across the board. The company’s profit increased 57% from a year ago while its revenue rose 15% from a year earlier, the fastest rate of growth since early 2022.
YouTube’s revenue growth was driven by a 21% increase in advertisements.
Operating margins increased to 32% this quarter, the highest in three years. Operating income climbed 46% higher from the previous year.
Advertising sales at search engine Google roared back to life in the quarter, generating $61.66 billion in revenue, up 13% from $54.55 billion a year ago. Management reported that the online advertising business is accelerating after a difficult period due to rising interest rates.
Google’s cloud business also showed strength, with its operating income more than quadrupling to $900 million in Q1.
In terms of AI, Alphabet’s executive team was a bit cagey about efforts to monetize the technology and its impact on internet search. However, they did say that they are adding AI features across their suite of products, including the leading online search engine.
Dividends and Buybacks
Along with its Q1 results, Alphabet also announced a dividend payment of 20 cents per share to be paid on June 17 to stockholders of record as of June 10. The company said that it “intends to pay quarterly cash dividends in the future.”
Alphabet also announced a new $70 billion stock buyback. The company had $108 billion of cash on hand at the end of Q1. While impressive, it should be noted that the dividend payout provides a yield of only 0.50% based on the current price of Alphabet stock.
In terms of valuation, Alphabet stock is currently trading at 25 times this year’s earnings based on consensus earnings per share forecasts of $6.83 for 2024. The shares are trading at 21 times next year’s earnings based on a 2025 forecast of $7.87 EPS.
Both multiples are close to the average among companies listed in the S&P 500 index and reasonable for a technology company of Alphabet’s size. In fact, Alphabet’s valuation is among the lowest of the mega-cap tech stocks that have trillion dollar market caps.
Buy Alphabet Stock
There are a lot of reasons to take a position in Alphabet stock. The company is a leader in the red hot field of AI, its online advertising business has come storming back, its revenue from cloud computing is growing leaps and bounds, and it is cash rich.
So much so, that the company is now paying its first ever dividend and buying back billions worth of its own stock. Throw in a reasonable valuation and strong growth prospects in coming years, and this becomes a no-brainer. Alphabet stock is a buy.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.