This week marks the 20th anniversary of Alphabet Inc. (NASDAQ:GOOGL) going public. Formerly known as Google, the company has evolved from a search engine pioneer to a tech behemoth, encompassing cloud computing, autonomous vehicles, and artificial intelligence. As we reflect on two decades of innovation and market leadership, the question arises: Is Alphabet stock still a millionaire maker for investors?
Alphabet’s Evolution and Market Dominance
Alphabet’s journey from a simple search engine to a diversified tech giant has been nothing short of extraordinary. The company’s expansion into cloud computing, ad-based video and music streaming, autonomous vehicle production, and healthcare has positioned it at the forefront of multiple industries. Alphabet’s relentless focus on innovation, particularly in artificial intelligence and machine learning, has kept it ahead of competitors.
Since its IPO in 2004, Alphabet stock has skyrocketed over 6,000%, vastly outperforming the S&P 500 and Nasdaq indices. With a year-to-date gain of 19%, Alphabet continues to deliver strong returns, but is it still the powerhouse it once was?
Major Acquisitions Fueling Growth
A significant part of Alphabet’s growth story is its strategic acquisitions. The company has acquired over 200 companies, with the $12.5 billion acquisition of Motorola Mobility in 2012 being one of the most notable. This acquisition played a crucial role in building the Android ecosystem, which now rivals Apple’s (NASDAQ:AAPL) iOS.
Other key acquisitions include:
YouTube (2006, $1.65 billion): Revolutionizing video and music streaming.
DoubleClick (2007, $3.1 billion): Enhancing Google’s marketing capabilities.
Nest Labs (2014, $3.2 billion): Expanding into smart home products.
Mandiant (2022, $5.4 billion): Strengthening Google Cloud’s cybersecurity offerings.
These acquisitions have not only fueled Alphabet’s growth but have also solidified its market dominance across various sectors.
Alphabet Stock Split History
Alphabet’s outstanding performance has led to two stock splits, the most recent being a 20-1 split in July 2022. The first split, a 2-1 split in March 2014, created two classes of shares: Class A (NASDAQ:GOOGL) with voting rights and Class C (NASDAQ:GOOG) without voting rights. These splits have made Alphabet’s shares more accessible to a broader range of investors, contributing to its long-term appreciation.
Current Growth Trajectory
Despite its massive size, Alphabet continues to grow at an impressive pace. According to estimates, Alphabet’s total sales are projected to rise by 15% in fiscal 2024 and by another 11% in FY25, reaching $330.36 billion. Earnings per share (EPS) are expected to increase by 31% this year to $7.63, with further growth to $8.64 per share in FY25. This robust growth underscores Alphabet’s ability to continue delivering value to shareholders.
Alphabet’s Valuation and Dividend
Alphabet stock currently trades at 21.9X forward earnings, slightly below the Internet-Services Industry average of 23.2X and the S&P 500’s 23.6X. This valuation is also below Alphabet’s decade-long high of 37X forward earnings, suggesting that the stock may still offer value to investors. Additionally, Alphabet paid its first-ever dividend in June, with a current yield of 0.48%, marking a new chapter in its commitment to returning capital to shareholders.
Regulatory Headwinds and Future Prospects
Alphabet’s dominance has not come without challenges. The company is currently facing regulatory scrutiny, with the U.S. Department of Justice (DOJ) accusing Google of monopolizing the online search and text advertising markets. Potential outcomes of this investigation could include forced divestitures or restrictions on certain business practices, which could impact Alphabet’s future growth.
Despite these headwinds, the average price target of $204.71 per share suggests a 22% upside from current levels, reflecting continued optimism among analysts.
Conclusion
Alphabet has undoubtedly been a millionaire maker for early investors, and it remains one of the most innovative companies in the world. However, the road ahead may be more challenging due to regulatory pressures and the law of large numbers. While Alphabet stock still holds significant growth potential, the next wave of gains may take longer to materialize, making it a more cautious buy for new investors.
Featured Image: Megapixl
