(Bloomberg) — Google parent Alphabet Inc. rallied Monday to breach $2 trillion in market value for the first time, fueled by a rebound in spending on digital ads and growth in its cloud business.
Its Class A shares gained as much as 1.2% to a record high, with the stock extending a recent rally to a fifth session. Alphabet is the top performer among the five biggest U.S. tech stocks this year with a more than 70% advance fueled largely by the growth in Google’s advertising business.
The share-price advance puts the company in an exclusive club alongside Apple Inc. and Microsoft Corp., the latter of which also reached the $2 trillion milestone this year. The Google parent hit $1 trillion in value for the first time in January 2020.
“It’s just a number, but I think it demonstrates that these are leading companies,” Kim Forrest, founder and chief investment officer at Bokeh Capital Partners, said in an interview. “It really is that simple — that the market rewards their growth, and their prospects for growth, with big valuations.”
Alphabet is the best-performing stock this year among the five biggest U.S. technology companies by sales, and bulls see the stock rising further because of its cheaper valuation and higher growth rate than most of its megacap peers.
Alphabet trades around 24 times forward earnings, making it cheaper than Amazon.com Inc. and Microsoft, but more expensive than Facebook parent Meta Platforms Inc. RBC Capital Markets analyst Brad Erickson said arguments can be made around whether the stock’s multiple is already baking in enough optimism, though he remains 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 stock, all but one recommend buying Alphabet shares. The average 12-month price target for the stock is $3,321, which suggests a 11% return from its current share price.
“Given the especially attractive Covid rebound exposure, ever-rising YouTube engagement and monetization, and GCP’s march toward profitability, we see solid reasons to own the name,” Erickson wrote in an Oct. 26 note, referring to the Google Cloud Platform.
Alphabet reported third-quarter sales on Oct. 26 that beat analysts’ estimates, reflecting robust advertiser spending. Alphabet’s results were “some of the most impressive” seen in recent years in the face of meaningful headwinds, Evercore ISI analyst Mark Mahaney wrote in a note.
Rapid Growth
Google was founded in Stanford University dorms in 1998, three years after co-founders Larry Page and Sergey Brin met. Page and Brin hired experienced executive Eric Schmidt to transform their hot startup into a more mature business in 2001. The company went public on the Nasdaq exchange on Aug. 19, 2004, with shares priced at $85, for a market valuation of $23 billion.
The years after were marked by rapid product growth, with the acquisition of Android and YouTube, and the development of Maps, Chrome and Google Cloud, a line of business services. The company used most of the additional platforms to turbocharge its advertising engine, and, in the process, became the world’s largest hub for digital ads.
Alphabet was created in 2015 to be a parent company for Google — a move that allowed Page and Brin to restructure the business. Ambitious future projects dubbed “Other Bets” including Waymo, the autonomous driving company, became organized under Alphabet. Sundar Pichai, a longtime executive, was appointed CEO of Google in 2015, and of Alphabet in 2019, after Page stepped down.
Pichai’s tenure has been marked by increasing strife between Google and its staff but also rapid revenue and profit growth. In 2020, despite the Covid-19 pandemic shrinking the advertising market, Google generated $147 billion in ad revenue.
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