Alphabet shares surged during Tuesday’s after-hours trading following the Google parent’s better-than-expected quarterly revenue and earnings on cloud and advertising strength. Total revenue for the three months ended Sept. 30 climbed 15%, or 16% on a constant-currency basis, to $88.27 billion, better than estimates of $86.3 billion, according to LSEG. Adjusted earnings-per-share (EPS) surged 37% year-over-year, to $2.12, exceeding Wall Street’s consensus estimate of $1.85 per share. GOOGL YTD mountain Alphabet YTD With shares running into the after-the-bell release and up around 5.7% on the print, we’re keeping our wait-for-a-pullback 2 rating . Given the volatility we are likely to see going into the U.S. presidential election, especially if the winner is not declared relatively quickly, it just doesn’t make much sense to chase these types of rallies. We’re reiterating our $210 per share price target. It’s also worth noting that cash flow in Q3 was a bit light, in part because of a $3 billion hit related to a 2017 fine levied by the European Commission. However, it’s the ongoing antitrust litigation in the U.S. by the Justice Department that represents a bigger overhang on the stock. Jim Cramer has been frustrated by the year-to-date performance of Alphabet’s stock versus Big Tech peers and fellow Club names Meta Platforms and Nvidia . However, on “Mad Money” following the release, Jim said Alphabet delivered an “unambiguously great quarter.” Bottom line Listening to the post-earnings conference call made one thing abundantly clear: Artificial intelligence is being woven into every aspect of this company and, in turn, driving more engagement from both consumers and enterprise customers alike. It’s not just revenue that AI is helping to grow, it’s also helping the company become more efficient than ever. In fact, on the call, CEO Sundar Pichai said, “Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers. This helps our engineers do more and move faster.” Alphabet Why we own it : Alphabet’s Google Search is an invaluable tool for advertisers. Its YouTube platform continues to gain screen time with viewers and stands to grow even more as the company looks to acquire major league sports rights. Though it did get off to a bumpy start, we believe Alphabet to be a leader in artificial intelligence research and see progress aiding cloud-computing growth over time. Competitors : Amazon , Microsoft and Meta Platforms Weight in portfolio : 2.73% Most recent buy : March 4, 2022 Initiated : July 22, 2014 A quarterly strong operating margin along with management commentary increased our confidence that Alphabet has not taken its eye off the efficiency ball while balancing growth-oriented endeavors such as artificial intelligence and cost discipline. We’re not overly concerned about capital expenditures given what we’re seeing in generative AI advancements. It costs money to make money, and the money is being spent on technical infrastructure — the largest being servers, followed by data centers and networking equipment. These latest results not only served to increase faith in management’s ability to develop cutting-edge AI tools and monetize them but should also ease investors’ minds regarding the growing competition for search queries from large language models like ChatGPT from Microsoft-backed OpenAI and many others. Commentary In addition to AI, advertising at Alphabet’s properties was strong in the third quarter. Revenue for the Google Search, YouTube ads, and Google Network line items totaled $65.85 billion. That was up more than 10% from the year-ago quarter, though it was a slower growth rate than in the second quarter. In other key revenue metrics, Google subscriptions, platforms, and devices gained 27.8% to $10.66 billion; the aforementioned Google Cloud was strong with a 35% gain to $11.35 billion; and Other Bets rose 30.6% to $388 million. All were better than expected. On the operating income side, Google Services, comprised of everything above except Cloud and Other Bets, gained nearly 29% to $30.86 billion. Google cloud also beat with a whopping 632% increase to $1.95 billion. Other Bets was the laggard, delivering a narrower but great-than-expected loss to $1.12 billion. Here’s a closer look at highlights from the quarter and thoughts on business going forward. The big story from Other Bets is Waymo — now serving over 150,000 paying customers and recording over 1 million fully autonomous miles per week. Last week, Waymo closed a $5.6 billion funding round to expand its robotaxi service. Also in Other Bets, CFO Anat Ashkenazi said on the call, “Wing, our drone delivery company, recently passed the one-year anniversary of scaling its partnership with Walmart in the Dallas Fort Worth area. Now operating in 11 stores and serving 26 different cities and towns.” Total advertising and subscription revenues generated at YouTube over the past 12 months surpassed the $50 billion mark for the first time in the platform’s history. Google Cloud growth was driven by “accelerated growth in Google Cloud Platform (GCP) across AI Infrastructure, Generative AI Solutions, and core GCP products,” with Pichai adding on the release that “in Cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals.” In the data center, the team is working diligently to lower the cost per query, which we know has gone up materially with the introduction of generative AI. In fact, Pichai noted that the cost of AI queries has declined by over 90% over the past 18 months. That comes even as the size of the Gemini model has doubled. Helping to address concerns around Alphabet’s ability to fend off Search competitors, Pichai noted on the call that AI Overviews in Search rolled out to over 100 new countries this week, now reaching over 1 billion users monthly. As a result, Pichai highlighted stronger user engagement “which is increasing overall search usage and user satisfaction. People are asking longer and more complex questions and exploring a wider range of websites. What’s particularly exciting is that this growth actually increases over time as people learn that Google can answer more of their questions.” Capital returns Alphabet returned $15.79 billion to investors via share repurchases in the third quarter, though the company did pay out $5.74 billion in stock-based compensation. The team also returned another $2.5 billion via dividends during the quarter. The company exited the quarter with $93.23 billion in cash, cash equivalents, and marketable securities on its balance sheet. (Jim Cramer’s Charitable Trust is long GOOGL, MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A sign is posted in front of a Google office in Mountain View, California, on Jan. 30, 2024.
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Alphabet shares surged during Tuesday’s after-hours trading following the Google parent’s better-than-expected quarterly revenue and earnings on cloud and advertising strength.
