In fact, Alphabet appears poised to make a tidy little profit this year just by doing absolutely nothing. It can let the U.S. Federal Reserve (Fed) do all the heavy lifting for it.
According to a recent analysis by Barron’s, Alphabet and a few other companies with lots of cash are in a position to earn big bucks. That is because the Fed is expected to raise short-term interest rates to about 2% by the end of the year.
Interest rates are going up as the Fed’s Federal Open Market Committee enacts policies to address rising inflation. Rising rates means that the costs of variable rate loans will go up, as well as the amount that you can earn on your deposits.
Alphabet and other big companies, of course, have a bigger cash position than you and me. So, they’re going to earn a lot more money from their massive cash positions.
According to Barron’s, GOOG stock will be profiting from about $139 billion in cash that Alphabet reported to have on hand at the end of the year. That will give GOOG stock about a $3 billion bonus to its year-end statement, or about a 4% boost to Alphabet’s annual earnings.
Other companies that will benefit include Berkshire Hathaway (NYSE:BRK-A,NYSE:BRK-B) and Apple (NASDAQ:AAPL), the article states. Berkshire Hathaway holds about $144 billion in cash and could earn an extra $3 billion from higher interest rates this year.
Apple, meanwhile, has a whopping $203 billion in cash and could earn an additional $4 billion in cash.
GOOG Stock at a Glance
Of course, just the allure of extra cash isn’t alone a reason to invest in any company, even one as profitable as Alphabet. Instead, consider it just another reason why investing in GOOG stock is a good idea.
Check out its most recent earnings report. In the fourth quarter (Q4), Alphabet reported revenue of $75.32 billion, an increase of 32% from a year ago. Net income was $20.64 billion, which was a jump of 35.5% from the same quarter in 2020. Earnings per share was also a big winner, coming in $30.69.
The company got 45% growth from its cloud business, which rose to $5.54 billion. The company is still operating at a loss in the cloud, but it narrowed the gap from $1.14 billion a year ago to $890 million in the most recent quarter.
Advertising revenue was $61.24 billion in the fourth quarter, which was a 33$ increase from $46.2 billion a year ago.
Chief Executive Officer Sundar Pichai stated:
“Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses, across our most important products. Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly.”
And on top of that, Alphabet is planning a 20-for-1 stock split this summer that will have several benefits. It will make the stock more accessible to retail investors. It will open the door to people to more easily sell put options. And it will allow the Dow Jones Industrial Average to consider adding Alphabet to the closely watched price-weighted index. I wrote more about that here.
The Bottom Line on GOOG Stock
Of course, there are no guarantees that Alphabet will earn the total $3 billion in added profits from the Fed’s increases of short-term interest rates.
But is anything really a guarantee in investing?
The takeaway here is that the Fed’s planned actions are yet another good reason to consider GOOG stock these days. I’m more convinced than ever that Alphabet is going to have a good year.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.