Alphabet Inc. closed decisively above a $2 trillion market cap for the first time on Friday as a strong earnings report reassured investors that the Google parent would be a major player in artificial intelligence.
Shares rose 10% to $171.95, their biggest one-day jump since July 2015, giving them a valuation of $2.15 trillion. The advance added nearly $200 billion to the company's market capitalization, making it one of the largest single-day value additions in the stock market's history. The stock is up 23% this year, compared with the Nasdaq 100's 5.3% gain.
The $2 trillion milestone followed the company's results, where revenue beat expectations thanks to the strength of its cloud computing unit. Cloud demand was boosted by growth in AI, while Alphabet also encouraged investors by introducing a dividend and announcing a $70 billion buyback program.
“Alphabet is very well run, its free cash flow is absolutely amazing, and it has a massive R&D budget, so while no one knows which company will have the best AI products, it's hard to bet on this one ” said Wayne Kaufman. , chief market analyst at Phoenix Financial Services.
While shares topped the $2 trillion level intraday in 2021, and again earlier this month, this is the first time Alphabet has closed above it. In doing so, it puts it in rarefied territory: only Apple Inc., Microsoft Corp., Saudi Aramco and Nvidia Corp. they have crossed the threshold. Nvidia, buoyed by massive demand for its AI chips, topped $2 trillion earlier this year, while Amazon.com Inc. it's not far from $2 trillion.
The road to $2 trillion has been a bit of a bumpy ride. The stock has been volatile amid some high-profile criticism of the company's AI offerings, and before the latest report, some investors had questioned its ability to compete with companies like OpenAI in this critical area despite spending heavily in the field for years.
Wall Street remains broadly positive on the stock, with nearly 85% of analysts tracked by Bloomberg recommending a buy. Both earnings and revenue are expected to grow at a double-digit rate each year through 2026.
Also, the stock still looks like a bargain. The stock trades at around 23.5 times estimated earnings, making it one of the cheapest of the so-called Magnificent Seven. The stock is also trading at a discount to the Nasdaq 100 and is only slightly above its 10-year average multiple.
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