Tech Giants Surge: Alphabet Poised to Join $3 Trillion Club Amid AI-Driven Rally

Why Amazon, Alphabet, and Meta Platforms Rallied Between 27% and 43% in the First Half of 2024

All three are major players in the digital advertising business, which saw a strong recovery in the first half as the U.S. economy remained resilient. Another commonality is that each is investing in new generative artificial intelligence (AI) functionality, which continued to capture the attention of investors. Core businesses reaccelerate as new AI announcements spur excitement Each of these three businesses saw a slowdown during 2022 and early 2023. The downturn forced all three to cut expenses in terms of real estate and personnel. Both Alphabet and Meta engaged in high-profile layoffs in what Mark Zuckerberg called the "year of efficiency," and Amazon completely retooled its e-commerce distribution architecture, from a national to a regional one, after the massive COVID-era overexpansion. The retooled format sped up deliveries and lowered costs significantly. Therefore, as inflation began to fall in earnest late last year and economic growth accelerated, all three companies posted impressive growth. With new streamlined cost structures, each company reported an upward inflection in profit margins, too. Amazon, for its part, was able to accelerate its revenue in its Q4 2023 and Q1 2024 earnings reports, achieving 13% growth in each quarter, up from 12% and 11% in the prior-year quarters. But because management had cut so much in the way of costs, operating cash flow surged a whopping 82% year over year in each of the two reported quarters. Incredibly, Amazon was able to do this even as it lowered capital expenditures relative to the prior year. That led to a massive surge in free cash flow, which reached over $50 billion on a trailing-12-month basis in Q1 2024, up from a slight free-cash-flow loss on the same basis just a year prior. Alphabet and Meta also had interesting commonalities and contrasts in the first half. First, both initiated a first-ever dividend, with Meta announcing a $0.50 quarterly dividend in February and Alphabet announcing a $0.20 quarterly dividend in April. In addition, both beat analyst expectations for revenue and profits on their Q4 2023 and Q1 2024 earnings releases, with each company posting accelerating year-on-year growth. However, Alphabet and Meta reacted differently to their earnings reports. Alphabet initially fell after its Q4 earnings release, only to jump double-digits after its Q1 earnings release. While Alphabet beat its Q4 revenue and earnings estimates overall, ad sales came up just short of analyst expectations. However, that concern quickly evaporated as investors came to focus on companies that will benefit from AI. And in Alphabet's first-quarter release, digital ad sales accelerated, as did cloud growth. With the announcement of a dividend and a fresh $70 billion repurchase program, investors put concerns aside and bid up the stock. In contrast, Meta soared after its Q4 earnings report, then sold off after its Q1 earnings report -- although that pullback proved to be short-lived. Perhaps not coincidentally, Meta's announcement of a dividend may have spurred the big gain after its Q4 call in February. But it was also likely due to the massive inflection in the company's profitability. After Zuckerberg's "year of efficiency" and investment in AI capabilities for engagement and ad targeting, Meta's revenue jumped 25% and its operating margin more than doubled from 20% to 41%. However, on its first-quarter release, Meta announced a pivot back to more spending. While the company accelerated revenue 27% and beat earnings estimates, management also announced an increase in its 2024 capital expenditures, to a range of $35 billion to $40 billion, up from prior guidance of $30 billion to $37 billion. Investors had perhaps been expecting a continuation of the past year's austerity, so the announcement of increased spending, mainly going to AI data center infrastructure, threw them off. Image source: Getty Images. And all three came forward with generative AI offerings Coming into the year, all three of these companies had been thought to be behind the combination of Microsoft and OpenAI in the generative AI race. However, during the first half of the year, each of these three giants made big strides in their AI efforts. In March, Amazon completed a $4 billion investment in Anthropic, an OpenAI rival started by previous OpenAI employees. The investment follows a number of AI-related tools unveiled in 2023, such as Amazon Bedrock and the company's own Inferentia and Trainium AI accelerators. Furthermore, Amazon Web Services' (AWS) revenue acceleration in Q1 to 17% growth, up from 13% in Q4 2023, indicated customers weren't abandoning AWS for competitors. Alphabet had also been seen as an AI laggard, even though it invented some of key technologies used by all AI companies today. In February, its initial rollout of its Gemini large language model garnered some controversy, when it generated inaccurate historical photos. However, it seems investors think Gemini will become a highly competitive chatbot. Later in the quarter in April, PC Magazine gave Gemini a four-star rating, picking it as its top chatbot at that time. As for Meta, concern over its high AI spending soon turned around. This is likely due to CEO Mark Zuckerberg's messaging that he sees a large opportunity to be one of the leading AI companies in the world, even outside of Meta's core platforms. Currently, Meta's Llama family of large language models is posting exciting performance specs. While some are skeptical, others are clearly giving Zuckerberg and his team the benefit of the doubt here, given their past successes in making business transitions. In sum, while the generative AI revolution has some disruptive possibilities, it's also possible it will only make large tech incumbents stronger, due to the large investments required to compete. In the first half, investors seemed to get on board with that thesis. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Amazon wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein and/or his clients have positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

1 Unstoppable Stock Set to Join Nvidia, Apple, and Microsoft in the $3 Trillion Club

The U.S. economy has a centurylong history of producing the world's most valuable companies: Microsoft, Nvidia, Amazon, Meta Platforms, and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have since joined Apple in the trillion-dollar club. In fact, Apple, Microsoft, and Nvidia have each graduated to the ultra-exclusive $3 trillion level, but I think one more company is set to join them. Alphabet is the tech conglomerate behind Google, YouTube, Waymo, DeepMind, and a host of other subsidiaries. It's a recognized leader in the fast-growing artificial intelligence (AI) space, which could be its ticket to a $3 trillion valuation by the end of 2025. Alphabet is currently valued at $2.3 trillion, so investors who buy the stock today could earn a gain of 32% if it does join the likes of Apple, Microsoft, and Nvidia. Image source: Alphabet. Alphabet is transforming is legacy business with AI Alphabet is at a crossroads. The company generates more than half of its revenue from Google Search, which has a 91% market share in the internet search industry. However, AI chatbots like ChatGPT offer a more convenient way to directly access information, and they can produce it instantly. Microsoft even struck a deal with OpenAI last year to use ChatGPT in its Bing search engine in an attempt to disrupt Google. But Google Search has been the window to the internet for decades, so Alphabet arguably has more valuable data with which to build AI models than any other tech giant. It launched its own chatbot called Bard last year, which evolved to become a family of multimodal models called Gemini. They can interpret and produce text, images, videos, and even computer code. Plus, Alphabet just introduced AI Overviews to the traditional Google Search experience. They are text-based responses that appear at the top of the search results, saving users from sifting through web pages to find answers to their queries. Alphabet says the reference links included in AI Overviews receive more clicks than those that appear in traditional search results, which could drive more advertising revenue and ease concerns over Google losing its dominance. Plus, the Gemini models are creating several other opportunities to generate AI revenue. Google Workspace users can now add Gemini for an additional monthly subscription fee, which will help boost their productivity in applications like Google Docs, Sheets, and Gmail. Additionally, the Gemini models are now available on Google Cloud, so developers can use them (along with more than 130 others from third parties) to build their own AI applications. This is a big cost saver for businesses compared to creating a large language model (LLM) from scratch, which takes time, truckloads of data, and substantial financial resources. Solid financial growth In the five years between 2019 and 2023, Alphabet revenue grew at a compound annual rate of 13.7%, bringing in a record $307.4 billion last year alone: The company kicked off 2024 with an above-trend revenue jump of 15% in the first quarter (year over year). It included a 14.3% increase in Google Search revenue alone, which was the fastest pace in almost two years. YouTube's revenue expansion accelerated to 20.8%, and Google Cloud remained the fastest-growing part of the business, with sales soaring by 28.4%. Improved market conditions were a big help, following a painful slump in the advertising industry throughout 2022 and 2023 due to uncertain economic conditions. But Alphabet could experience even faster growth in the second half of this year, because the U.S. Federal Reserve is forecast to cut interest rates three times in the coming months. It could prompt businesses to spend more money on marketing as they try to reach a consumer with more dollars in their pocket. Alphabet's (mathematical) path to the $3 trillion club Alphabet generated $6.52 in earnings per share over the last four quarters, and based on its current stock price of $185.01, it trades at a price-to-earnings (P/E) ratio of 28.3. That's cheaper than the 32.7 P/E ratio of the Nasdaq-100 index, so Alphabet is technically undervalued relative to its peers in the tech sector. It also makes Alphabet much cheaper than all three members of the $3 trillion club, which trade at an average P/E ratio of 50.2 (which is heavily skewed by Nvidia's lofty valuation): PE Ratio data by YCharts I don't think it would be appropriate for Alphabet's P/E to rise to 50.2, but if it did, that would value the company at over $4 trillion. But it could rise to the average P/E ratio of Apple and Microsoft (37.6), which would be enough to place Alphabet in the $3 trillion club. But even if Alphabet doesn't experience any multiple expansion (a rise in its P/E ratio), it could join the $3 trillion club within the next 18 months solely based on the growth of its business. How? Wall Street expects the company to deliver $8.61 in earnings per share in 2025, placing Alphabet stock at a forward P/E ratio of 21.5. That means its shares will have to rise 32% between now and then just to maintain their current P/E ratio of 28.3. That gain will be enough to value the company at $3 trillion. I'm not the only one who thinks Alphabet is a great value at the current price. The company expanded its share repurchase program by a whopping $70 billion earlier this year, which means it will periodically buy chunks of its own stock to return money to shareholders. In summary, Alphabet has more than one path into the exclusive $3 trillion club, and investors who buy the stock today could earn a nice gain along the way. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $787,026!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

These top stocks could Join Apple, Microsoft, and Nvidia in the $3 Trillion Club

Silicon Valley's tech talent is flocking to New York City, drawn by its vibrant ambiance and promising social scene. The U.S. Senate is sometimes called "the most exclusive club." However, I can think of a club that's much more exclusive than the legislative body, which has 100 members. It's the $3 trillion club. Only three companies in the world boast market caps of $3 trillion or more: Apple, Microsoft, and Nvidia. But this club might be a little less exclusive in the not-too-distant future. Here are three unstoppable stocks that could join Apple, Microsoft, and Nvidia in the $3 trillion club. 1. Alphabet Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is in the driver's seat to become the next $3 trillion company. The Google parent's market cap currently stands at around $2.3 trillion. At the rate the stock is climbing, it's not out of the question that Alphabet could join Apple, Microsoft, and Nvidia by early 2025. Most of Alphabet's revenue and profits continue to be generated by its Google Search business. While some have predicted the rise of generative AI presents an existential threat to search engines, Google has thrived. CEO Sundar Pichai noted in Alphabet's first-quarter earnings call that Google's new AI overviews have increased search usage and user satisfaction with search results. Google Cloud should enjoy a strong tailwind from AI for years to come. The unit's sales jumped 28% year over year in Q1 with operating income soaring 371%. Google Cloud is especially popular with generative AI start-ups, with more than 60% using its cloud service. YouTube is another key growth driver for the company. It's the leader in U.S. streaming with viewers watching over 1 billion hours of content daily. YouTube now has over 100 million music and premium service subscribers, while YouTube TV claims over 8 million paid subscribers. 2. Amazon Amazon (NASDAQ: AMZN) isn't too far behind Alphabet, with a market cap hovering around $2 trillion. I fully expect the e-commerce and cloud services giant will also take a spot in the $3 trillion club within the next two or three years. Like Google Cloud, Amazon Web Services (AWS) should deliver strong growth in the years ahead thanks to the demand for building and deploying AI models. AWS is the leader in the cloud services market. I suspect it will stay on top because of the appeal of new products such as AI-powered software development assistant Q. Amazon dominates the e-commerce market. Cost improvements in the company's e-commerce platform and distribution network have helped to boost profitability. As Amazon increases delivery speed further, its e-commerce revenue and profits should grow as customers shop online more frequently. Advertising is also an important growth engine for Amazon. In Q1, advertising sales soared 24% year over year on a constant-currency basis. This growth could increase in the future as advertising on Prime Video gains momentum. 3. Meta Platforms Meta Platforms (NASDAQ: META) has a steeper hill to climb to join the $3 trillion club. The social media leader's market cap of $1.3 trillion is well below the market caps of Alphabet and Amazon. However, I think it's only a matter of time before Meta reaches the $3 trillion threshold. The company is an advertising juggernaut. Its apps, including Facebook, Instagram, Messenger, and WhatsApp, reach more than 3.2 billion people across the world every day. Advertisers can' ignore such a massive audience. Meta's efforts to more efficiently monetize its products, especially Reels, are paying off handsomely. Profits more than doubled year over year in Q1. The company continues to get better and better at showing ads to the right person at the right time. AI presents a major growth opportunity for Meta. In particular, CEO Mark Zuckerberg believes that AI-powered business messaging will be the "next major pillar" of the company's business. Should you buy these future members of the $3 trillion club? You might think Alphabet, Amazon, and Meta are no-brainer stocks to buy if they're truly on track to join the $3 trillion club. And you'd be right, in my view. All three stocks have tremendous growth prospects. The growth drivers already mentioned don't even tell the full story. For example, robotaxis could be huge opportunities for Alphabet's Waymo and Amazon's Zoox units. Meta could be a bigger winner in virtual reality and the metaverse. I think Alphabet, Amazon, and Meta are great stocks to buy and hold. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. Don't miss this second chance at a potentially lucrative opportunity Offer from the Motley Fool: Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a "Double Down" stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Right now, we're issuing "Double Down" alerts for three incredible companies, and there may not be another chance like this anytime soon.

These top stocks could Join Apple, Microsoft, and Nvidia in the $3 Trillion Club

It should be only a matter of time before the market caps of these stocks hit $3 trillion. The U.S. Senate is sometimes called "the most exclusive club." However, I can think of a club that's much more exclusive than the legislative body, which has 100 members. It's the $3 trillion club. Only three companies in the world boast market caps of $3 trillion or more: Apple, Microsoft, and Nvidia. But this club might be a little less exclusive in the not-too-distant future. Here are three unstoppable stocks that could join Apple, Microsoft, and Nvidia in the $3 trillion club. 1. Alphabet Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is in the driver's seat to become the next $3 trillion company. The Google parent's market cap currently stands at around $2.3 trillion. At the rate the stock is climbing, it's not out of the question that Alphabet could join Apple, Microsoft, and Nvidia by early 2025. Most of Alphabet's revenue and profits continue to be generated by its Google Search business. While some have predicted the rise of generative AI presents an existential threat to search engines, Google has thrived. CEO Sundar Pichai noted in Alphabet's first-quarter earnings call that Google's new AI overviews have increased search usage and user satisfaction with search results. Google Cloud should enjoy a strong tailwind from AI for years to come. The unit's sales jumped 28% year over year in Q1 with operating income soaring 371%. Google Cloud is especially popular with generative AI start-ups, with more than 60% using its cloud service. YouTube is another key growth driver for the company. It's the leader in U.S. streaming with viewers watching over 1 billion hours of content daily. YouTube now has over 100 million music and premium service subscribers, while YouTube TV claims over 8 million paid subscribers. 2. Amazon Amazon (NASDAQ: AMZN) isn't too far behind Alphabet, with a market cap hovering around $2 trillion. I fully expect the e-commerce and cloud services giant will also take a spot in the $3 trillion club within the next two or three years. Like Google Cloud, Amazon Web Services (AWS) should deliver strong growth in the years ahead thanks to the demand for building and deploying AI models. AWS is the leader in the cloud services market. I suspect it will stay on top because of the appeal of new products such as AI-powered software development assistant Q. Amazon dominates the e-commerce market. Cost improvements in the company's e-commerce platform and distribution network have helped to boost profitability. As Amazon increases delivery speed further, its e-commerce revenue and profits should grow as customers shop online more frequently. Advertising is also an important growth engine for Amazon. In Q1, advertising sales soared 24% year over year on a constant-currency basis. This growth could increase in the future as advertising on Prime Video gains momentum. 3. Meta Platforms Meta Platforms (NASDAQ: META) has a steeper hill to climb to join the $3 trillion club. The social media leader's market cap of $1.3 trillion is well below the market caps of Alphabet and Amazon. However, I think it's only a matter of time before Meta reaches the $3 trillion threshold. The company is an advertising juggernaut. Its apps, including Facebook, Instagram, Messenger, and WhatsApp, reach more than 3.2 billion people across the world every day. Advertisers can' ignore such a massive audience. Meta's efforts to more efficiently monetize its products, especially Reels, are paying off handsomely. Profits more than doubled year over year in Q1. The company continues to get better and better at showing ads to the right person at the right time. AI presents a major growth opportunity for Meta. In particular, CEO Mark Zuckerberg believes that AI-powered business messaging will be the "next major pillar" of the company's business. Should you buy these future members of the $3 trillion club? You might think Alphabet, Amazon, and Meta are no-brainer stocks to buy if they're truly on track to join the $3 trillion club. And you'd be right, in my view. All three stocks have tremendous growth prospects. The growth drivers already mentioned don't even tell the full story. For example, robotaxis could be huge opportunities for Alphabet's Waymo and Amazon's Zoox units. Meta could be a bigger winner in virtual reality and the metaverse. I think Alphabet, Amazon, and Meta are great stocks to buy and hold. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. Don't miss this second chance at a potentially lucrative opportunity Offer from the Motley Fool: Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a "Double Down" stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Right now, we're issuing "Double Down" alerts for three incredible companies, and there may not be another chance like this anytime soon.

Why Amazon, Alphabet, and Meta Platforms Rallied Between 27% and 43% in the First Half of 2024 | The Motley Fool

All three are major players in the digital advertising business, which saw a strong recovery in the first half as the U.S. economy remained resilient. Another commonality is that each is investing in new generative artificial intelligence (AI) functionality, which continued to capture the attention of investors. Each of these three businesses saw a slowdown during 2022 and early 2023. The downturn forced all three to cut expenses in terms of real estate and personnel. Both Alphabet and Meta engaged in high-profile layoffs in what Mark Zuckerberg called the "year of efficiency," and Amazon completely retooled its e-commerce distribution architecture, from a national to a regional one, after the massive COVID-era overexpansion. The retooled format sped up deliveries and lowered costs significantly. Therefore, as inflation began to fall in earnest late last year and economic growth accelerated, all three companies posted impressive growth. With new streamlined cost structures, each company reported an upward inflection in profit margins, too. Amazon, for its part, was able to accelerate its revenue in its Q4 2023 and Q1 2024 earnings reports, achieving 13% growth in each quarter, up from 12% and 11% in the prior-year quarters. But because management had cut so much in the way of costs, operating cash flow surged a whopping 82% year over year in each of the two reported quarters. Incredibly, Amazon was able to do this even as it lowered capital expenditures relative to the prior year. That led to a massive surge in free cash flow, which reached over $50 billion on a trailing-12-month basis in Q1 2024, up from a slight free-cash-flow loss on the same basis just a year prior. Alphabet and Meta also had interesting commonalities and contrasts in the first half. First, both initiated a first-ever dividend, with Meta announcing a $0.50 quarterly dividend in February and Alphabet announcing a $0.20 quarterly dividend in April. In addition, both beat analyst expectations for revenue and profits on their Q4 2023 and Q1 2024 earnings releases, with each company posting accelerating year-on-year growth. However, Alphabet and Meta reacted differently to their earnings reports. Alphabet initially fell after its Q4 earnings release, only to jump double-digits after its Q1 earnings release. While Alphabet beat its Q4 revenue and earnings estimates overall, ad sales came up just short of analyst expectations. However, that concern quickly evaporated as investors came to focus on companies that will benefit from AI. And in Alphabet's first-quarter release, digital ad sales accelerated, as did cloud growth. With the announcement of a dividend and a fresh $70 billion repurchase program, investors put concerns aside and bid up the stock. In contrast, Meta soared after its Q4 earnings report, then sold off after its Q1 earnings report -- although that pullback proved to be short-lived. Perhaps not coincidentally, Meta's announcement of a dividend may have spurred the big gain after its Q4 call in February. But it was also likely due to the massive inflection in the company's profitability. After Zuckerberg's "year of efficiency" and investment in AI capabilities for engagement and ad targeting, Meta's revenue jumped 25% and its operating margin more than doubled from 20% to 41%. However, on its first-quarter release, Meta announced a pivot back to more spending. While the company accelerated revenue 27% and beat earnings estimates, management also announced an increase in its 2024 capital expenditures, to a range of $35 billion to $40 billion, up from prior guidance of $30 billion to $37 billion. Investors had perhaps been expecting a continuation of the past year's austerity, so the announcement of increased spending, mainly going to AI data center infrastructure, threw them off. Coming into the year, all three of these companies had been thought to be behind the combination of Microsoft and OpenAI in the generative AI race. However, during the first half of the year, each of these three giants made big strides in their AI efforts. In March, Amazon completed a $4 billion investment in Anthropic, an OpenAI rival started by previous OpenAI employees. The investment follows a number of AI-related tools unveiled in 2023, such as Amazon Bedrock and the company's own Inferentia and Trainium AI accelerators. Furthermore, Amazon Web Services' (AWS) revenue acceleration in Q1 to 17% growth, up from 13% in Q4 2023, indicated customers weren't abandoning AWS for competitors. Alphabet had also been seen as an AI laggard, even though it invented some of key technologies used by all AI companies today. In February, its initial rollout of its Gemini large language model garnered some controversy, when it generated inaccurate historical photos. However, it seems investors think Gemini will become a highly competitive chatbot. Later in the quarter in April, PC Magazine gave Gemini a four-star rating, picking it as its top chatbot at that time. As for Meta, concern over its high AI spending soon turned around. This is likely due to CEO Mark Zuckerberg's messaging that he sees a large opportunity to be one of the leading AI companies in the world, even outside of Meta's core platforms. Currently, Meta's Llama family of large language models is posting exciting performance specs. While some are skeptical, others are clearly giving Zuckerberg and his team the benefit of the doubt here, given their past successes in making business transitions. In sum, while the generative AI revolution has some disruptive possibilities, it's also possible it will only make large tech incumbents stronger, due to the large investments required to compete. In the first half, investors seemed to get on board with that thesis.

1 Unstoppable Stock Set to Join Nvidia, Apple, and Microsoft in the $3 Trillion Club | The Motley Fool

This tech titan could join the most exclusive club on Wall Street by the end of 2025. The U.S. economy has a centurylong history of producing the world's most valuable companies: Microsoft, Nvidia, Amazon, Meta Platforms, and Alphabet (GOOG -1.43%) (GOOGL -1.40%) have since joined Apple in the trillion-dollar club. In fact, Apple, Microsoft, and Nvidia have each graduated to the ultra-exclusive $3 trillion level, but I think one more company is set to join them. Alphabet is the tech conglomerate behind Google, YouTube, Waymo, DeepMind, and a host of other subsidiaries. It's a recognized leader in the fast-growing artificial intelligence (AI) space, which could be its ticket to a $3 trillion valuation by the end of 2025. Alphabet is currently valued at $2.3 trillion, so investors who buy the stock today could earn a gain of 32% if it does join the likes of Apple, Microsoft, and Nvidia. Alphabet is at a crossroads. The company generates more than half of its revenue from Google Search, which has a 91% market share in the internet search industry. However, AI chatbots like ChatGPT offer a more convenient way to directly access information, and they can produce it instantly. Microsoft even struck a deal with OpenAI last year to use ChatGPT in its Bing search engine in an attempt to disrupt Google. But Google Search has been the window to the internet for decades, so Alphabet arguably has more valuable data with which to build AI models than any other tech giant. It launched its own chatbot called Bard last year, which evolved to become a family of multimodal models called Gemini. They can interpret and produce text, images, videos, and even computer code. Plus, Alphabet just introduced AI Overviews to the traditional Google Search experience. They are text-based responses that appear at the top of the search results, saving users from sifting through web pages to find answers to their queries. Alphabet says the reference links included in AI Overviews receive more clicks than those that appear in traditional search results, which could drive more advertising revenue and ease concerns over Google losing its dominance. Plus, the Gemini models are creating several other opportunities to generate AI revenue. Google Workspace users can now add Gemini for an additional monthly subscription fee, which will help boost their productivity in applications like Google Docs, Sheets, and Gmail. Additionally, the Gemini models are now available on Google Cloud, so developers can use them (along with more than 130 others from third parties) to build their own AI applications. This is a big cost saver for businesses compared to creating a large language model (LLM) from scratch, which takes time, truckloads of data, and substantial financial resources. In the five years between 2019 and 2023, Alphabet revenue grew at a compound annual rate of 13.7%, bringing in a record $307.4 billion last year alone: The company kicked off 2024 with an above-trend revenue jump of 15% in the first quarter (year over year). It included a 14.3% increase in Google Search revenue alone, which was the fastest pace in almost two years. YouTube's revenue expansion accelerated to 20.8%, and Google Cloud remained the fastest-growing part of the business, with sales soaring by 28.4%. Improved market conditions were a big help, following a painful slump in the advertising industry throughout 2022 and 2023 due to uncertain economic conditions. But Alphabet could experience even faster growth in the second half of this year, because the U.S. Federal Reserve is forecast to cut interest rates three times in the coming months. It could prompt businesses to spend more money on marketing as they try to reach a consumer with more dollars in their pocket. Alphabet generated $6.52 in earnings per share over the last four quarters, and based on its current stock price of $185.01, it trades at a price-to-earnings (P/E) ratio of 28.3. That's cheaper than the 32.7 P/E ratio of the Nasdaq-100 index, so Alphabet is technically undervalued relative to its peers in the tech sector. It also makes Alphabet much cheaper than all three members of the $3 trillion club, which trade at an average P/E ratio of 50.2 (which is heavily skewed by Nvidia's lofty valuation): I don't think it would be appropriate for Alphabet's P/E to rise to 50.2, but if it did, that would value the company at over $4 trillion. But it could rise to the average P/E ratio of Apple and Microsoft (37.6), which would be enough to place Alphabet in the $3 trillion club. But even if Alphabet doesn't experience any multiple expansion (a rise in its P/E ratio), it could join the $3 trillion club within the next 18 months solely based on the growth of its business. How? Wall Street expects the company to deliver $8.61 in earnings per share in 2025, placing Alphabet stock at a forward P/E ratio of 21.5. That means its shares will have to rise 32% between now and then just to maintain their current P/E ratio of 28.3. That gain will be enough to value the company at $3 trillion. I'm not the only one who thinks Alphabet is a great value at the current price. The company expanded its share repurchase program by a whopping $70 billion earlier this year, which means it will periodically buy chunks of its own stock to return money to shareholders. In summary, Alphabet has more than one path into the exclusive $3 trillion club, and investors who buy the stock today could earn a nice gain along the way.