We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Alphabet Earnings Preview: The Best Mega Cap Tech Stock in the Market?
Read MoreHide Full Article
Earnings season is in full swing, and this week is packed with market leading reports. Google parent company Alphabet (GOOGL - Free Report) reports earnings Tuesday, October 24 after the market closes.
Alphabet, along with the rest of the rest of the Mega Cap technology sector has enjoyed a stellar performance in 2023, rallying 69% YTD. Thanks to developments in Generative Artificial Intelligence, a historically low earnings multiple, and industry leading growth in the cloud segment, GOOGL stock has had the wind at its back.
And while some investors may use this strong performance as an opportunity to take profits, and rotate into other investments, I think Alphabet still has many bullish factors playing in its favor. Tuesday’s earnings report should provide some valuable insights and if we see a continuation in key metrics, should propel GOOGL stock higher through next year.
Image Source: Zacks Investment Research
Earnings Estimates
Earnings estimates have moved slightly higher since the beginning of the year for Alphabet, however over the last two months they have been flat. Because of this mixed earnings revision trend GOOGL has a Zacks Rank #3 (Hold) rating.
But it shouldn’t be overlooked that GOOGL is expecting some very healthy growth in both the top and bottom line. Sales are expected to show a 10.25% YoY increase to $63.1 billion and earnings are forecast to climb 38.8% YoY to $1.45 per share.
Analysts anticipate GOOGL to grow EPS by an average of 15.4% annually over the next 3-5 years, which is the second-best earnings forecast among the magnificent seven. Amazon (AMZN - Free Report) has the highest expected EPS growth with projections of 29.5% annual growth over the next 3-5 years.
Image Source: Zacks Investment Research
Cloud Growth, Profitability, and Competition
Top of mind for market participants is Alphabet’s cloud segment, which is the fastest growing at the company. It is also the most contentious, as GOOGL is in fierce competition with the other cloud leaders Amazon and Microsoft (MSFT - Free Report) .
Alphabet’s Google Cloud services, although the smallest of the three, boasts the highest growth rate. Last quarter, Cloud showed a 28% YoY increase in revenue to $8 billion, while Amazon’s AWS grew 12% YoY to $22.1 billion and Microsoft grew cloud sales by 15% YoY.
Another welcome development in Google Cloud is rapidly growing profitability. For many years the business was run at a loss, however starting in Q1 2023 the segment showed a profit of $191 million. It then followed up in Q2 with a $395 million profit. It will be very interesting to see what kind of profits GOOGL can book this quarter.
Valuation
It is also worth noting that when compared to the other two cloud giants, Amazon and Microsoft, Alphabet has a more compelling valuation. Today, GOOGL is trading at a one year forward earnings multiple of 23.9x, which is well below Microsoft’s 30x, and Amazon’s 56x. Alphabet’s earnings multiple is still even below its 10-year median of 26.5x.
Image Source: Zacks Investment Research
AI Developments
Alphabet is not sleeping on the massive opportunities in Artificial Intelligence either. Just this year it has released both Vertex AI and Duet AI. Vertex is an AI development studio built off Google’s Cloud platform. It is essentially a tool for Machine Learning and AI engineers to more easily and effectively collaborate and build models.
Duet AI is a direct competitor to Microsoft’s 365 AI copilot. Duet AI is a natural language chat interface that assists users in everything from writing and editing to generating images from text prompts. It is being integrated into Alphabets suite of productivity apps.
As an added bonus to the Quarterly earnings call, CEO Sundar Pichai has been using these meetings to announce new developments in AI, and there could very well be another exciting addition. The whole industry is moving so incredibly fast, and with the epic amounts of data Alphabet collects, could further enhance the usability of this new technology.
Bottom Line
Because of its reasonable valuation, high sales and earnings expectations, and innovation potential, I believe Alphabet is one of the most compelling stocks in the market, especially when compared to its mega cap counterparts.
Furthermore, because its earnings estimates have remained mostly unchanged throughout the year, while the technology sector has broadly staged a major comeback this year, leaves an opportunity for GOOF to post an outsized earnings beat. The Zacks ESP is forecasting a 0.89% beat.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Alphabet Earnings Preview: The Best Mega Cap Tech Stock in the Market?
Earnings season is in full swing, and this week is packed with market leading reports. Google parent company Alphabet (GOOGL - Free Report) reports earnings Tuesday, October 24 after the market closes.
Alphabet, along with the rest of the rest of the Mega Cap technology sector has enjoyed a stellar performance in 2023, rallying 69% YTD. Thanks to developments in Generative Artificial Intelligence, a historically low earnings multiple, and industry leading growth in the cloud segment, GOOGL stock has had the wind at its back.
And while some investors may use this strong performance as an opportunity to take profits, and rotate into other investments, I think Alphabet still has many bullish factors playing in its favor. Tuesday’s earnings report should provide some valuable insights and if we see a continuation in key metrics, should propel GOOGL stock higher through next year.
Image Source: Zacks Investment Research
Earnings Estimates
Earnings estimates have moved slightly higher since the beginning of the year for Alphabet, however over the last two months they have been flat. Because of this mixed earnings revision trend GOOGL has a Zacks Rank #3 (Hold) rating.
But it shouldn’t be overlooked that GOOGL is expecting some very healthy growth in both the top and bottom line. Sales are expected to show a 10.25% YoY increase to $63.1 billion and earnings are forecast to climb 38.8% YoY to $1.45 per share.
Analysts anticipate GOOGL to grow EPS by an average of 15.4% annually over the next 3-5 years, which is the second-best earnings forecast among the magnificent seven. Amazon (AMZN - Free Report) has the highest expected EPS growth with projections of 29.5% annual growth over the next 3-5 years.
Image Source: Zacks Investment Research
Cloud Growth, Profitability, and Competition
Top of mind for market participants is Alphabet’s cloud segment, which is the fastest growing at the company. It is also the most contentious, as GOOGL is in fierce competition with the other cloud leaders Amazon and Microsoft (MSFT - Free Report) .
Alphabet’s Google Cloud services, although the smallest of the three, boasts the highest growth rate. Last quarter, Cloud showed a 28% YoY increase in revenue to $8 billion, while Amazon’s AWS grew 12% YoY to $22.1 billion and Microsoft grew cloud sales by 15% YoY.
Another welcome development in Google Cloud is rapidly growing profitability. For many years the business was run at a loss, however starting in Q1 2023 the segment showed a profit of $191 million. It then followed up in Q2 with a $395 million profit. It will be very interesting to see what kind of profits GOOGL can book this quarter.
Valuation
It is also worth noting that when compared to the other two cloud giants, Amazon and Microsoft, Alphabet has a more compelling valuation. Today, GOOGL is trading at a one year forward earnings multiple of 23.9x, which is well below Microsoft’s 30x, and Amazon’s 56x. Alphabet’s earnings multiple is still even below its 10-year median of 26.5x.
Image Source: Zacks Investment Research
AI Developments
Alphabet is not sleeping on the massive opportunities in Artificial Intelligence either. Just this year it has released both Vertex AI and Duet AI. Vertex is an AI development studio built off Google’s Cloud platform. It is essentially a tool for Machine Learning and AI engineers to more easily and effectively collaborate and build models.
Duet AI is a direct competitor to Microsoft’s 365 AI copilot. Duet AI is a natural language chat interface that assists users in everything from writing and editing to generating images from text prompts. It is being integrated into Alphabets suite of productivity apps.
As an added bonus to the Quarterly earnings call, CEO Sundar Pichai has been using these meetings to announce new developments in AI, and there could very well be another exciting addition. The whole industry is moving so incredibly fast, and with the epic amounts of data Alphabet collects, could further enhance the usability of this new technology.
Bottom Line
Because of its reasonable valuation, high sales and earnings expectations, and innovation potential, I believe Alphabet is one of the most compelling stocks in the market, especially when compared to its mega cap counterparts.
Furthermore, because its earnings estimates have remained mostly unchanged throughout the year, while the technology sector has broadly staged a major comeback this year, leaves an opportunity for GOOF to post an outsized earnings beat. The Zacks ESP is forecasting a 0.89% beat.