Potentially Unyielding Stock Prepared to Align with Nvidia, Apple, and Microsoft, Attaining a $3 Trillion Valuation in 2025
Alright, buckle up folks, 'cause we're diving deep into the world of tech giants and their journey towards the coveted $3 trillion club. As of now, only a handful of organizations have managed to break the trillion-dollar barrier, with Apple, Nvidia, and Microsoft leading the charge at $3.56 trillion, $3.34 trillion, and $3.11 trillion, respectively. But there's one more company aiming for the big leagues – Alphabet, the world's fourth-largest company with a market cap of $2.36 trillion and growing.
Now, Alphabet isn't just sitting back and watching the others soar – no, this tech titan is gunning for the top spot. In 2024, its stock skyrocketed by over 35%, reaching record highs, and it shows no signs of slowing down. But what's the secret sauce behind Alphabet's meteoric rise? Let's dissect the situation and find out.
AI is Transforming the Game
Remember when ChatGPT stormed the digital world in 2023, leaving quite a dent in Google Search's 90% market share in the internet search industry? Alphabet, being a forward-thinking company, didn't panic – instead, it countered with a fierce response, integrating AI into its operations like never before.
The result? A chatbot named Gemini and AI-generated answers to queries, which now appear at the top of search results, saving users the hassle of scrolling through web pages. Alphabet has also launched AI Overviews for Google Search, incorporating text, images, and links to third-party websites – providing users with a comprehensive answer to their queries while racking up more clicks than traditional search results.
But that's not all – Alphabet has rolled out AI Overviews to over 100 countries, reaching a staggering 1 billion users every month. Not only is this a game-changer for Alphabet, making it a formidable competitor in the search industry, but it could also be the key to maintaining its market dominance.
Google Cloud: Staking its Claim in the AI World
Alphabet hasn't forgotten about its other money-making giant: Google Cloud. With a market capitalization of just $11.3 billion, it might seem like a small fish in comparison to Google Search's revenue of $49.3 billion in Q3 2024. However, Google Cloud is not one to be underestimated.
In Q3, Google Cloud's revenue growth accelerated by 34.9%, while the search business only managed a paltry 12.2% growth. AI played a significant role in this achievement, with Google Cloud becoming the go-to destination for developers seeking AI software and large language models like Gemini.
Google Cloud houses Nvidia's industry-leading GPUs, and with in-house chip designs like Trillium TPUs, it's proven to be a strong competitor in the market. Its software offerings, like over 130 ready-made LLMs and features like Circle to Search, have further strengthened its position in the AI industry.
The Path to $3 Trillion: Math, Earnings, or Both?
So, how does Alphabet plan to join the $3 trillion club in 2025? There are two options on the table: multiple expansion (higher P/E ratio) or earnings growth.
If Alphabet's P/E ratio reaches the average of the $3 trillion giants, it would result in a staggering 68% increase in its stock price – making it a $4 trillion company without earning any additional revenue! Even if its P/E ratio manages to reach 35, Alphabet would still become a $3.2 trillion company.
But let's say Alphabet's P/E ratio remains constant and it relies on earnings growth instead. With projected EPS of $8.99 in 2025, Alphabet needs a 19% stock surge just to maintain its current P/E ratio. This would increase its market cap to $2.85 trillion, still short of the target. But with a combination of multiple expansion and earnings growth, it's not an impossible feat.
The Low P/E Ratio: A Blessing in Disguise?
Alphabet's current P/E ratio of 25.7 is significantly lower than its competitors. But why, you ask? Well, back in 2020, the U.S. Department of Justice sued Alphabet for engaging in anticompetitive behavior. The lawsuit centered around payments to partners, such as Apple, to make Google the default search engine on various devices.
However, the outcome of the lawsuit is still up in the air. Will Alphabet be forced to pay a financial penalty, or will it be required to stop paying partners like Apple, risking a significant decrease in its market share? Or will the case be dragged out for years, further delaying any progress?
The good news is that incoming President Trump has shown signs of wanting to ease regulations and potentially support Alphabet. If the administration manages to pull Alphabet out of the regulatory fire, its P/E ratio is likely to rise, significantly boosting investor confidence and driving up its stock price.
And there you have it, folks – a whirlwind tour of how Alphabet is poised to join the $3 trillion club in 2025. By leveraging AI in its Google Search and Google Cloud operations, making strategic investments, and potentially benefiting from favorable regulations, Alphabet is well on its way to reaching new heights in the tech world.
Given Alphabet's strategic use of AI in its operations, it's essential for investors to consider the role of finance in driving its growth towards the $3 trillion market cap. Investing in Alphabet's stocks could yield significant returns as the company continues to innovate in AI and benefits from potential regulatory changes. Moreover, with its strong focus on AI, Alphabet is set to capture a larger share of the growing AI market, making it an attractive option for those looking to invest in the future of technology.
