After a couple years of a bear market, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) stock has returned to all-time-highs in 2024. The latest surge higher comes on the back of another solid earnings report as the internet search titan seemingly prints cash quarter after quarter.
In this new bull market fueled by artificial intelligence (AI) computing infrastructure, Alphabet could have a massive advantage over the competition. It already has one of the world's most powerful installed base of computing power via a sprawling fleet of data centers and communications networks. As new ways to monetize AI are unlocked (like via the cloud, for example), Alphabet stock could still be a great buy for 2024 and beyond.
Alphabet has cash to spend on AI hardware
For Q1 2024, Alphabet's internet empire reported a 15% year-over-year increase in quarterly revenue to $80.5 billion. That's all fine and well, but the real story here was the operating income profit margin, which increased from 25% in Q1 2023 to 32% in Q1 2024. The result was a massive 47% increase in operating profit to $25.5 billion, and 62% surge in earnings per share (EPS).
What that means for shareholders is lots of cash returns. Alphabet has been going about returning excess cash via stock buybacks for years, but a first-ever quarterly dividend was also announced:
- $15.7 billion in share buybacks in Q1 2024 alone, or about 0.8% of Alphabet's market cap if you're looking for a dividend yield equivalent
- And a new quarterly dividend of $0.20 per share, currently good for an annualized yield of nearly 0.5%
Besides more share buybacks and the dividend, Alphabet still gushes enough cash that it can continue to upgrade its sprawling global data centers. These days, you can think of the company as really having two massive compute engines at work: one for Google Search and related Google Services (including YouTube, which is primarily monetized via ads); and a second data center network for Google Cloud. Google Cloud and its long list of enterprise customer capabilities is still in high growth mode, contributing $9.57 billion in quarterly revenue in Q1 (up 28% year-over-year) and generating an operating margin of 9.4% (up from just 2.6% last year).
These data center upgrades aren't cheap. It involves purchasing AI systems from Nvidia, as well as Tensor Processing Units (TPUs) from Alphabet's long-standing co-development project with Broadcom. These semiconductor and AI system purchases get filed under capital expenditures (CapEx). Google's total CapEx nearly doubled in Q1 compared to the year prior to a whopping $12 billion.
But again, the Google empire is printing plenty of cash to cover the bills. Additionally, it still has a mind-boggling sum of $108 billion in cash and short-term investments and another $34 billion in long-term investments on balance, offset by only $13.2 billion in debt.
The Google advantage -- only just beginning?
All of this is to say Alphabet has an incredibly powerful installed base of computing power, and a stockpile of cash and epic quarterly free cash flow that enables the business to keep investing to sustain its lead.
Data by YCharts.
In this market where the AI race is heating up, and investors are looking for a surefire payout from AI development, Alphabet has obvious advantages.
After the last quarter's update, shares trade for a forward price-to-earnings ratio of 22. It isn't a cheap stock, but given Alphabet's ability to invest in data center computing and turn that into higher profitability, this could still be a great portfolio addition for the long term.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo has positions in Alphabet, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
