Strong revenue and earnings growth in 2023, driven by the rise of artificial intelligence, have positioned Alphabet (NASDAQ:GOOG) as a compelling stock to buy in 2024. The company’s success is largely attributed to the demand for AI, which has fueled advertising revenue from Google Search and YouTube. With expectations of a smooth transition and increased capital allocation, Alphabet presents important opportunities for investors.
In the latest quarterly results, GOOG stock reported an impressive 11% year-over-year increase in revenue, reaching $76.7 billion. Operating income also soared to $21.3 billion. These positive outcomes can be attributed to Alphabet’s cloud business and ongoing advancements in AI, including the Gemini model. These factors set the stage for continued momentum for Alphabet in the coming year.
While Google and YouTube ads remain the primary sources of revenue, the high-growth Google Cloud has significantly contributed to Alphabet’s success. By enhancing business productivity, security, and cost efficiency, Google Cloud has showcased robust growth, generating $8.4 billion in Q3. With a year-over-year revenue surge of 22.5%, Google Cloud has outpaced the overall growth of the company. Moreover, Google Cloud turned profitable in 2023, reporting $266 million in operating income during Q3, a substantial shift from the $440 million operating loss in the same period last year.
Alphabet’s focus on quantum computing is yet another noteworthy aspect of its business strategy. While a 10X value increase may be ambitious due to the company’s size, industry forecasts suggest a potential 3X growth by 2025. Collaborating with NASA and the Universities Space Research Association, Google’s Quantum Artificial Intelligence Lab operates as an open-source library, facilitating quantum computing applications. The lab provides essential tools like Cirq, a Python-based library for quantum circuit creation, as well as various software for quantum chemistry and machine learning applications.
When it comes to the search engine market, Google continues to maintain a dominant position. In July 2023, Google held a significant market share of 83.5%, slightly lower than its 84% share in July 2022. Microsoft Bing, the second player, experienced a slight increase from 8.8% to 9.2% during the same period.
Google’s expertise in digital advertising is another key aspect of its success. In Q3, the company witnessed a 9% surge in digital advertising sales, leading to a quarterly profit of $19.7 billion, a remarkable 42% increase compared to the previous year. This growth, coupled with cost cuts and an 11% rise in total revenue, exceeded market expectations. Although concerns have been raised regarding changes in the workforce, Alphabet remains a dominant force in the global digital advertising market, boasting a revenue share of approximately 39%. Through its targeted ads, Google and YouTube continue to attract advertisers, with Q3 showing increased revenue in the retail and brand response segments.
Google Ads has evolved significantly over the years, incorporating AI and machine learning to enhance campaign efficiency. In 2024, AI will play an even more pivotal role in Google Ads, introducing advancements such as responsive search ads that adapt to user queries and optimize ad placement in real time for maximum impact. AI-driven campaign performance optimization and predictive analytics enable advertisers to make data-informed decisions and stay ahead of the competition.
With its strong 2023 revenue and EPS growth, diverse revenue streams, successful Google Cloud business, quantum computing initiatives, and dominance in the digital advertising market, Alphabet presents compelling reasons to invest in GOOG stock. As the demand for AI continues to rise, Google’s innovative approach ensures it remains at the forefront of technological advancements, delivering impressive results for investors in the years to come.
