Major Tech Corporation Allocates $75 Billion Toward AI Development; Should Shareholders Consider Purchasing Stocks?
Alphabet, the tech giant behind Google, reported mixed results for the fourth quarter of 2024. Revenue surged 12% year over year to $96.5 billion, just falling short of Wall Street's expectation of $96.67 billion. Earnings per share (EPS) slightly beat expectations, rising 31% to $2.15, compared to analysts' consensus estimate of $2.13. However, investors were mainlty disappointed with Google Cloud's performance as its revenue of $12 billion fell short of the consensus estimates of $12.2 billion.
The market has also raised concerns about Alphabet's future free cash flows and margins due to its aggressive plans for capital expenditures (capex) of $75 billion in 2025. This is a significant increase from the $52.5 billion in 2024. As a result, Alphabet's shares have taken a hit, dropping more than 9% since the earnings release.
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Despite these challenges, Alphabet's business fundamentals and financials remain strong. The company generated a massive $72.8 billion in free cash flow and returned $70 billion to shareholders in 2024. Alphabet's robust AI strategy and strong search and advertising model continue to impress, despite growing competition from AI players.
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Alphabet's AI strategy has been a major growth catalyst for its cloud business, with customers using computing capacity over eight times more for AI training and inferencing compared to 18 months ago. The company has also been infusing AI features across its seven key products and platforms, such as search, advertising, and the cloud, to increase usage and expand possible functions for its AI.
Google Cloud's top line as revenue of $12 billion fell short of the consensus estimates of $12.2 billion. The market has also raised concerns about the future of Alphabet's free cash flows and margins in the face of aggressive plans for capital expenditures (capex) of $75 billion in 2025, a dramatic increase from $52.5 billion in 2024.
Alphabet's core business continues to impress with Google Search revenue up 12.5% year over year to $54 billion, while YouTube advertising sales jumped 14% to $10.5 billion in the fourth quarter. Google Search has shown exceptional strength in financial services and retail verticals, with AI Overviews driving usage and user satisfaction. YouTube, on the other hand, is the leading streaming service in the U.S. based on viewing time, with short-form videos and podcasts seeing success.
earnings, which is reasonable considering the
Despite some concerns about Alphabet's share price, with the stock trading at nearly 23 times forward earnings, its valuation is still reasonable considering the S&P 500's forward price-to-earnings ratio (P/E) of 22.5. Analysts expect revenue and adjusted earnings per share to grow year over year by 11.4% and 11.8%, respectively, in fiscal 2025. Alphabet's strong financial health and growth prospects make it a compelling buy in 2025, despite its aggressive capital expenditure plans.
In conclusion, Alphabet's mixed fourth-quarter 2024 results may have disappointed investors, but its strong business fundamentals, financial performance, and growth prospects make it a smart pick for 2025. With its focus on AI, search, and advertising services, Alphabet remains a leader in the tech industry.
Investors were particularly disappointed with Alphabet's Google Cloud's revenue, as it fell short of consensus estimates. The company's aggressive plans for capital expenditures in 2025 have raised concerns about its future free cash flows and margins. Despite these challenges, investing in Alphabet's stock might still be reasonable due to its forward earnings and strong growth prospects. Alphabet's core business, including Google Search and YouTube, continues to perform well, with revenue and earnings per share expected to grow in fiscal 2025.
Alphabet's overall financial strategy includes a significant investment in AI, which has been a major growth catalyst for its cloud business. This investment has resulted in customers using computing capacity for AI training and inferencing nearly nine times more than 18 months ago. The company has also integrated AI features across its key products and platforms to increase usage and expand their functions.
Investors should consider Alphabet's EPS during their financial analysis. In the fourth quarter of 2024, Alphabet's earnings per share slightly beat analysts' consensus estimate, rising 31% to $2.15. This strong earnings performance, along with the company's strong financial health and growth prospects, makes Alphabet a compelling buy in 2025.
Investors looking for details about Alphabet's future financial performance might find the href link to the company's earnings release helpful. There, they can find more information about the company's revenue and earnings performance, as well as its capital expenditure plans. The link, "href," will take them to the relevant page where this information is available.