The bulls see stocks rise even higher, driven by a rebound in spending on digital ads and the growth of their cloud business.
Google’s parent company Alphabet Inc. rallied on Monday to surpass $ 2 trillion in market value for the first time, fueled by a rebound in spending on digital ads and the growth of its cloud business.
Its Class A shares gained as much as 1.2% to an all-time high, and the stock extended a recent rally to a fifth session. Alphabet is the best performer this year among the five largest US tech stocks by sales, with a 70% advance driven in large part by growth in Google’s advertising business.
The stock price surge places the company in an exclusive club alongside Apple Inc. and Microsoft Corp., the latter of which also hit the $ 2 trillion milestone this year. Google’s parent reached a value of $ 1 trillion for the first time in January 2020.
“It’s just a number, but I think it shows that these are leading companies,” said Kim Forrest, founder and chief investment officer of Bokeh Capital Partners, in an interview. “It really is that simple, that the market rewards its growth and growth prospects with great valuations.”
The bulls see the stock rise further due to its cheaper valuation and higher growth rate than most of its megacap peers.
Alphabet is trading around 24 times future earnings, making it cheaper than Amazon.com Inc. and Microsoft, but more expensive than Facebook’s parent, Meta Platforms Inc. RBC Capital Markets analyst Brad Erickson said they can be argue if the multiple of the stock is already in the making. quite optimistic, although still positive on Alphabet and said it is “crowded for a reason”.
Alphabet is a near unanimous favorite on Wall Street. Of the 49 analysts tracked by Bloomberg who cover the shares, all but one recommend buying Alphabet shares. The 12-month average price target for the stock is $ 3,321, suggesting a return of 11% from its current share price.
“Given Covid’s especially attractive bounce exposure, YouTube’s growing engagement and monetization, and GCP’s march toward profitability, we see strong reasons to own the name,” Erickson wrote in October. 26 note, referring to Google Cloud Platform.
Alphabet reported third-quarter sales in October. 26 that beat analyst estimates, reflecting strong spending by advertisers. Alphabet’s results were “some of the most impressive” seen in recent years in the face of major headwinds, Evercore ISI analyst Mark Mahaney wrote in a note.
Optimism in the cloud
Future Alphabet share price earnings will be driven by continued earnings growth, according to David Kalis, partner at Future Fund LLC. He said the stock is the second largest position on the Future Fund Active ETF.
The company’s earnings per share is expected to reach nearly $ 130 in 2023, the average of analyst estimates compiled by Bloomberg, or nearly triple the $ 44 EPS reported in 2018. Kalis said he sees the cloud division of Alphabet as the business area that is most underestimated by the market.
“Its cloud segment appears to be hitting a sweet spot amid recent business victories, while Waymo could add another catalyst to expand its fully addressable market in the medium to long term,” Bloomberg Intelligence analyst Mandeep Singh wrote in a message, referring to Alphabet’s Division of Autonomous Vehicles.
Matt Peron, research director at Janus Henderson Investors, said short-term traders may look to make some profit after the shares rise.
“Anything could happen in the short term, so it may not be as strong in the next three months,” he said in a telephone interview. “For the next three years though, we really like it and we will continue to maintain it.”