Alphabet (NASDAQ:GOOG) has emerged as a strong growth stock for 2024, propelled by robust FY23 revenue and EPS growth driven by the demand for artificial intelligence. Google Search and YouTube fuel advertising revenue, and expectations of a soft landing may boost capital allocation in 2024. These factors will have important implications for GOOG stock investors.
In the latest quarterly results, GOOG stock recorded an 11% year-over-year revenue increase to $76.7 billion, with impressive operating income reaching $21.3 billion. The cloud business and ongoing AI advancements, including the Gemini model, position Alphabet for continued momentum in the coming year.
Although these already make Alphabet a good stock to buy, let’s delve more into the other reasons why you should not miss out on this stock.
Excels in Cloud Computing
Alphabet, initially a search engine, now thrives on diverse revenue streams. While Google and YouTube ads remain primary earners, the high-growth Google Cloud significantly contributes by enhancing business productivity, security, and cost efficiency. Leveraging Generative AI, Alphabet continually improves its offerings and attracts businesses with a compelling $300 sign-up credit.
Google Cloud displayed robust growth, reaching $8.4 billion in Q3. Its revenue surged by 22.5% year-over-year, outpacing the company’s overall 11% year-over-year revenue increase. Google Cloud turned profitable in 2023, generating $266 million in operating income during Q3, a notable shift from the $440 million operating loss reported in the corresponding period last year.
Moreover, the company is is noteworthy for its quantum computing endeavors. While expecting a 10X value increase may be unrealistic given its size, a forecast suggests a potential 3X by 2025. Google’s Quantum Artificial Intelligence Lab, a collaborative effort with NASA and the Universities Space Research Association, operates as an open-source library facilitating quantum computing applications. This includes Cirq, a Python-based library for quantum circuit creation, and various software for quantum chemistry and machine learning applications.
Strong Advertising Business
In July 2023, Google retained a significant 83.5% share of the global desktop search engine market, slightly lower than the 84% share in July 2022. Microsoft Bing, the second player, increased its share from 8.8% to 9.2% during the same period.
Google’s digital advertising sales surged by 9% in Q3, driving Alphabet Inc.’s quarterly profit to $19.7 billion, a 42% increase from the previous year. This growth, coupled with cost cuts and an 11% rise in total revenue to $76.69 billion, surpassed market expectations. The strategic reduction of over 7,800 employees contributed to the positive financial performance. As of September, Alphabet had a workforce of approximately 182,400 employees.
Although this shift raises concerns for some analysts, Google remains a dominant force in the global digital advertising market, holding around 39% of the revenue share. Alphabet’s proficiency in delivering targeted ads ensures that Google and YouTube remain attractive platforms for advertisers, with Q3 showing increased advertising revenue, particularly in the retail and brand response segments.
AI Integration in Advertising
Google Ads has evolved significantly since its early days, when manual campaign management was the norm. Recognizing the need for more sophisticated solutions, Google integrated AI and machine learning to analyze vast data sets, enhancing real-time bidding decisions and campaign efficiency.
In 2024, AI plays a pivotal role in Google Ads, introducing key advancements. Responsive search ads dynamically adapt to user queries, utilizing multiple headlines and descriptions for relevance. Performance Max consolidates campaigns across Google properties, optimizing ad placement in real time for maximum impact.
Moreover, the campaign performance optimization relies on machine learning. AI analyzes historical data, user interactions, and market trends to enhance bidding strategies, resulting in efficient spending and improved ROI. Predictive analytics, another AI feature, enables advertisers to anticipate future trends and opportunities based on extensive historical data and user behavior. This proactive approach helps stay ahead of the competition.
On the date of publication, Chris MacDonald 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.
