On February 4, Alphabet (Nasdaq: Goog)(Nasdaq: Googl) Mixed performance reported in the fourth quarter of 2024. Turnover increased by 12% on an annual basis to $ 96.5 billion, lower than the Wall Street -Zoel -Wit of $ 96.67 billion. The profit per share (EPS) increased by 31% to $ 2.15, which means that the consensus estimate of analysts barely hit $ 2.13.
Investors were mainly disappointed about the top line of Google Cloud, because the $ 12 billion turnover did not succeed in the consensus estimates of $ 12.2 billion. The market has also expressed concern about the future of free cash flows and margins of Alphabet in light of aggressive plans for capital expenditure (Capex) of $ 75 billion in 2025, a dramatic increase of $ 52.5 billion in 2024.
It is not surprising that shares have fallen by more than 9% since the release of profit.
The stock is also hurt by the claims of the Chinese start-up deep chat about developing a large language model with possibilities that are comparable to the GPT4 of OpenAi at considerably lower costs. With the market that questions the enormous level of AI expenditure, investors are also concerned about the prospects of income from Alphabet’s Chatbot Gemini.
Although these challenges cannot be ignored, the foundation and financial data of the company are still strong. The company generated a free cash flow of $ 72.8 billion and returned to shareholders in 2024 $ 70 billion. Here are some other important reasons why it can be a smart choice in 2025.
Alphabet was paramount in the current AI revolution with its versatile strategy. The company unveiled its most capable AI model, Gemini 2.0, in December 2024, mainly to focus on the fast -growing agent AI market. The company has also released the Workhorse Gemini 2.0 Flash model aimed at faster data movement and improved performance for developers and customers.
And it has aggressively infused AI functions in all its seven important products and platforms – such as searching, advertising and the cloud – to increase use and to expand possible functions for its AI.
The acceptance of this technology has been an important growth catalyst for its cloud activities, whose customers use the computer capacity more than eight times more for AI training and inference compared to 18 months ago. And management has worked on utilizing AI options to optimize efficiency in the entire technological stack, which includes hardware, software models and products.
Because alphabet is drawn up to give $ 75 billion in Capex, mainly on technical infrastructure, including data centers and servers, the company can see a much faster growth for the now capacity -restricted Google Cloud. The margins can also improve, because management AI technologies gives priority that enable cost efficiency.
Alphabet’s core activity continues to impress despite the rising competition from AI players. Google Search Revenue rose by 12.5% years to year to $ 54 billion, while the YouTube advertising sale in the fourth quarter increased by 14% to $ 10.5 billion.
Google search has demonstrated exceptional strength in financial services (insurance) and retail verticals (especially during the holiday shop season). The integration of Gemini-driven AI overviews in searching in more than 100 countries has also been a key to increase the use and user satisfaction for Google search.
This effect is particularly pronounced with younger users who learn to ask new questions and are impressed by the efficiency and speed of AI overviews. Alphabet has also made Circle to Search (Touch-Screen Enabled Search Functions) on more than 200 million Android devices that further stimulate the mobile use of Google search.
Every day, YouTube content was streamed on televisions for more than 1 billion hours worldwide in 2024, making it the leading streaming service in the US based on viewing time. YouTube has been successful with his short videos and podcasts. Connected television accounted for nearly 15% of the shorts who look in the US in the US.
Alphabet shares act in almost 23 times ahead of income, which is reasonable, given the S&P 500The forward price-gain ratio (p/e) of 22.5. Various other reasons show the potential for improving the company’s valuation multiples in the coming months.
Analysts expect that the turnover and adapted profit per share year after year will grow by 11.4% and 11.8% respectively in Fiscal 2025. Although those estimates seem modest, they are impressive for a company of Alphabet’s scale and geographical reach. The company generated nearly $ 100.2 billion in net income, while the operational margin was a solid 32% in tax 2024. It also has a strong balance with $ 96 billion in cash and tradable effects.
Google Cloud is the number 3 player in the worldwide market for cloud infrastructure services, good for a share of 11% in the fourth quarter of 2024. It showed impressive growth in the quarter, despite capacity restrictions. The core search and YouTube companies also reported robust growth.
Finally, the autonomous division of the company, Waymo, also saw dramatic progress in 2024, by reaching a milestone of safe completion of more than 4 million passenger travel. The service sees increased acceptance, with an average of more than 150,000 travel every week.
The planned Capex of $ 75 billion for 2025 may seem in the short term, but it can be a large growth catalyst in the long term. That is why alphabet, given all this steel wind, seems to be a compelling purchase in 2025.
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Suzanne Frey, a director of Alphabet, is a member of the board of directors of the Motley Fool. Manali Pradhan has no position in one of the aforementioned shares. The Motley Fool has positions and recommends Alphabet. The Motley Fool has a disclosure policy.
This tech giant invests $ 75 billion on AI. Is it time to buy? was originally published by the Motley Fool
