Google hits all-time high with US$2-trillion valuation in sight

Investing

Google parent Alphabet registered its highest share price ever on Tuesday, as the search engine titan rides the artificial intelligence wave to a historic valuation.
Alphabet: At Boston's new Google store, a play to reach more consumers
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Key Facts

Alphabet stock hit an all-time intraday high of US$159.89 per share and closed at a record closing price of US$158.14, gaining 1.3% and moving against modest broader market losses.

That sent the Alphabet total market value to US$1.95 trillion, putting it within 3% of registering a US$2 trillion market capitalization, a milestone achieved by the company for a few-minute stretch in late 2021 and only ever reached otherwise by American tech peers Apple, Microsoft and Nvidia, plus Saudi Arabia-controlled oil giant Saudi Aramco.

Alphabet’s most recent flirtation with a US$2 trillion valuation follows a 13% runup in its share price year-to-date and a 77% jump dating back to the end of 2022, a rally spurred by record profits due to resilient advertising spending and on the back of investor optimism partially inspired by the company’s potential to further profit off of AI, as Alphabet’s price to future earnings ratio sits at its highest level in two years, indicating the market is betting on future profit potential.

Wall Street largely expects the Google parent to surpass theUS$2 trillion mark, as the average analyst price target of US$166 implies a US$2.1 trillion market cap for Alphabet, according to FactSet.

Oppenheimer analyst Jason Helfstein is among the Alphabet bulls, setting a US$185 price target (US$2.3 trillion implied market cap) for Alphabet shares in a Sunday note which helped propel the stock up 1.5% in Monday trading, citing optimism about Google’s ability to thrive as its generative AI applications take hold in search.

Big Number

19%. That’s the annualized rate of return on investment for Alphabet shares over the last decade, easily beating the S&P 500’s 13% but falling short of the more than 20% annualized returns achieved by all other American companies valued at over US$1 trillion, Amazon, Apple, Microsoft, Meta and Nvidia.

Key Background

Alphabet stock’s impressive but below-its-peers performance is reflected in the market’s often uneven reaction to its AI offerings, though sentiment has improved recently as Google emerges as one of the top players in generative AI, and reports suggest the company is mulling charging for AI-powered search. After its share price fell nearly 40% in 2022, Alphabet’s business recovered nicely as advertising spending proved stable as the U.S. seemingly avoided a full-blown recession long feared. Ads account for more than three-fourths of Google’s total revenue.

What To Watch For

Alphabet will report first-quarter earnings later this month, and average analyst forecasts predict the company to report a record Q1 profit of nearly US$19 billion.

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