Google parent Alphabet joins the $2 trillion club as results show the power of AI

Alphabet Inc. closed well above the $2 trillion market cap for the first time on Friday as the powerhouse’s earnings report reassured investors that parent company Google will be a major player in artificial intelligence.
Shares rose 10% to $171.95, the biggest one-day jump since July 2015, giving it a valuation of $2.15 trillion. The advance added almost $200 billion to the company’s market capitalization, making it one of the largest single-day additions in stock market history. The stock is up 23% this year, compared with a 5.3% gain for the Nasdaq 100.

The $2 trillion milestone followed the company’s results, where revenue beat expectations on the strength of its cloud computing unit. Cloud demand was fueled by the growth of AI, while Alphabet also cheered investors by introducing a dividend and announcing a $70 billion share buyback program.

“Alphabet is extremely well run, its free cash flow is absolutely amazing and it has a huge R&D budget, so while no one knows which company will have the best AI products, it’s hard to bet,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

While the stock topped the $2 trillion level on an intraday basis in 2021 and again earlier this month, it’s the first time Alphabet has closed above it. That puts it in limited territory — only Apple Inc., Microsoft Corp., Saudi Aramco and Nvidia Corp. have exceeded the threshold. Nvidia — driven by huge demand for its AI chips — topped $2 trillion earlier this year, while Amazon.com Inc. itself. not far from $2 trillion.

The road to $2 trillion was a bit of a bumpy ride. Shares have been volatile amid some high-profile criticism of the company’s AI offerings, and before the latest report, some investors questioned its ability to compete with firms like OpenAI in this critical area, despite spending heavily in the field for years.

Wall Street remains broadly positive on the stock, with nearly 85% of analysts tracked by Bloomberg recommending a buy. Both earnings and revenue are expected to grow at a double-digit rate each year through 2026.

In addition, the stock continues to look like something of a bargain. The stock trades at about 23.5 times expected earnings, making it among the cheapest of the so-called Magnificent Seven. The stock is also trading at a discount to the Nasdaq 100 and is only modestly above its 10-year moving average.

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