ii view: Google owner Alphabet plans to invest big in 2025
Incorporating AI into its many products such as Search and YouTube. We assess prospects for this ‘Magnificent Seven’ tech titan.
5th February 2025 11:34
by Keith Bowman from interactive investor
Fourth-quarter results to 31 December
- Revenue up 12% to $96.5 billion
- Adjusted earnings up 31% to $2.15 per share
Chief Executive Sundar Pichai said:
“Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies. In Search, advances like AI Overviews and Circle to Search are increasing user engagement. Our AI-powered Google Cloud portfolio is seeing stronger customer demand, and YouTube continues to be the leader in streaming watchtime and podcasts.
“Our results show the power of our differentiated full-stack approach to AI innovation and the continued strength of our core businesses.”
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ii round-up:
Google owner Alphabet Inc Class A (NASDAQ:GOOGL) detailed sales and earnings broadly matching Wall Street forecasts but with capital expenditure for the year ahead much higher.
Fourth-quarter revenue climbed 12% from a year ago to $96.5 billion, with management’s ongoing focus on efficiency helping to drive a near one-third increase in adjusted earnings to $2.15 per share. Planned investment of $75 billion in 2025 on items like servers, datacentres and AI products comfortably surpassed analysts' expectations of around $60 billion. The news came just days after Chinese start-up DeepSeek announced a new AI product at a fraction of the development costs seen in the US.
Shares in the Nasdaq 100 and S&P 500 company fell 7% in post results US trading having come into this latest news up 44% over the last year. That’s similar to fellow cloud data provider and potential host of AI software Amazon.com Inc (NASDAQ:AMZN). The Nasdaq 100 index is up 22%.
Sales of Alphabet’s core Search Engine business rose to $54 billion from $48 billion in the final quarter of 2023, potentially aided by new AI developments.
Revenue from Google Cloud, operating from datacentres and using expensive Nvidia chips to process AI software, climbed to $11.95 billion from $9.2 billion a year ago. Divisional profit soared to $2.1 billion from $893 million in Q4 2023.
Elsewhere, sales at its small Other Bets division, accounting for less than 1% of revenues and including its self-drive Waymo business, fell to $400 million from $657 million in Q4 2023. Losses rose to $1.17 billion from $863 million a year ago. Waymo’s robotaxi service operates in Los Angeles and San Francisco, with plans to launch it in Austin Texas during 2025 and in Tokyo going forward.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Alphabet shares post the results, but reduced its fair value price estimate to $210 from $215 per share.
ii view:
Started in 1998 as Google, and changed to Alphabet in 2015, the group has generated annual revenues of over $350 billion during the latest financial year. Google Services, accounting for 87% of revenues during this latest quarter, includes Google Search, YouTube and Google advertising. Google Cloud accounts for 12%, with Other Bets the small balance.
Geographically, North America remains its biggest market at almost half of all sales. That’s followed by Europe, the Middle East and Africa (EMEA) at around 29%, Asia-Pacific 16%, and Latin America the balance.
For investors, investment spending on items such as datacentres and AI is not guaranteed to generate success and growing profits. Supply chain constraints in relation to building new datacentres are being seen. Rivals to Alphabet businesses are fighting hard and include TikTok for YouTube, Microsoft Corp (NASDAQ:MSFT) for Cloud and Tesla Inc (NASDAQ:TSLA) for Waymo, while government concerns regarding industry dominance remain.
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On the upside, diversity of both business type and geographical region exist. Management’s focus on costs has previously included a rejig of its office portfolio. Ownership of the mobile phone Android operating system leaves it less dependent than say Meta on the metrics set by Apple for advertising privacy, while a focus on shareholder returns recently increased given the introduction of a dividend payment alongside share buybacks.
In all, and despite ongoing risks, this diversified tech titan looks to remain worthy of its place in many investor portfolios.
Positives
- Alphabet dominates the digital advertising market
- Focus on costs
Negatives
- Uncertain economic outlook
- Subject to currency movements
The average rating of stock market analysts:
Buy
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