Key points
- Google is one of the early leaders in artificial intelligence technology.
- Shares of Google’s parent company Alphabet have consistently outperformed the S&P 500.
- Alphabet’s combination of online search, digital advertising, video streaming, cloud services, AI and other high-growth tech trends make it an attractive investment.
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Alphabet is the parent company of Google and YouTube and is the world’s leading online search provider. It’s a market leader in online advertising and one of the top innovators in artificial intelligence technology.
Alphabet shares dropped 39% in 2022 during a broad tech sector sell-off, the stock’s worst annual performance since 2008. Fortunately, Google came roaring back in 2023, largely thanks to a surge in investor interest in AI technology.
Alphabet’s stock hasn’t set a new all-time high since October 2021, but its Class A and Class C common shares are up nearly 48% year to date.
The company famed for founding Google has a long history of innovation. The stock has exposure to online search, AI, data processing, autonomous vehicles, cloud computing, internet and mobile search, online video streaming and many other secular tech growth trends. This exposure will provide plenty of long-term growth opportunities for the stock in the coming years.
The key to Google’s success may hinge on the company’s ability to stay at the forefront of the AI and internet search arms race while managing regulatory crackdowns and antitrust actions.
Google at a glance
When Google was founded in 1998, the entire company was purely a search engine that focused on optimizing Internet search results. By mid-1999, Google’s search engine was processing 500,000 queries per day.
By the time the company went public in 2004, it reached a valuation of $23 billion. At the time of its initial public offering, users searched on Google roughly 200 million times daily. By the end of 2011, Google was processing roughly 3 billion daily searches.
GOOG vs. GOOGL
When Google went public in 2004, the company sold shares of Class A common stock to the public, while Google executives held shares of Class B stock that came with 10 times the voting rights of the public’s Class A shares.
In 2014, Google underwent an unconventional stock split that split its public Class A stock by a 2-for-1 ratio, creating a new Class C stock with no voting rights. Today, while Class A and Class C shares represent equal ownership stakes in Alphabet, the public Class A shares with voting rights trade under the ticker GOOGL and the Class C shares with no voting rights trade under the ticker GOOG.
Google stock splits
Google went public at an IPO price of $85 back in 2004, but it has since split its stock twice.
In 2014, Google implemented a 2-for-1 stock split of its Class A shares as part of its reorganization under a new parent company called Alphabet.
Many people still refer to Google stock. But technically, Google is now a subsidiary of Alphabet’s publicly traded parent company.
In 2022, Alphabet implemented a 20-for-1 stock split of both its Class A and Class C shares, meaning one share of Google’s IPO stock would now represent 40 shares.
Google stock price
Google was added to the index in March 2006. On a split-adjusted basis, Google’s stock price climbed more than $18 in early 2007, but it dropped back down to less than $6.20 in December 2008 during the Great Recession. Google shares were back at above $30 per share by 2015, and the stock continued to rally for the remainder of the 2010s.
The stock made a new split-adjusted all-time high of $151.55 in February 2022 before the 2022 tech sector sell-off began. After falling below $90 in late 2022, Alphabet’s Class A shares have recovered to above $130.
How has Google stock performed?
Google’s stock has generally performed very well since its 2004 IPO. In the past five years, Alphabet shares have generated a total return of about 129%, more than double the roughly 49% total return of the S&P 500 during that same stretch.
In the past 12 months, Alphabet’s outperformance has continued. Its 35% total return is almost exactly double the S&P 500’s 18% return in that stretch.
Opportunities and obstacles facing Google (Alphabet)
Alphabet is well-positioned to continue outperforming moving forward, but it also faces several potential stumbling blocks ahead.
Google’s clear dominance in online search volume and engagement should continue to drive digital ad spending. Alphabet’s Android smartphone operating system positions Google well enough to capitalize on the shift from desktop to mobile search volume. Finally, Google’s tremendously profitable search business helps fund Alphabet’s technology innovation and investments, such as its Waymo driverless vehicle business, Mandiant cybersecurity business, Bard AI chatbot, and X Development moonshot technology division.
But Alphabet also faces several major challenges. The company is currently battling the U.S. Department of Justice in court over charges Google violated antitrust laws in establishing an internet search monopoly.
Alphabet’s investments in high-risk, high-reward projects will weigh on the company’s overall profitability. In addition, Google faces stiff competition from Microsoft’s ChatGPT-powered Bing and other Big Tech companies with deep pockets in AI technology.
Strengths
- Forward earnings multiple of less than 20 suggests Alphabet is attractively valued compared to most megacap tech peers.
- It is highly exposed to secular tech growth trends, including online advertising, cloud computing and video streaming.
- Gmail, search and YouTube have provided Alphabet with valuable user data that can help fine-tune its ad business.
Weaknesses
- Antitrust risks and regulatory measures against Big Tech companies create uncertainty.
- There is no guarantee Google’s high-risk investments in technologies such as driverless cars will ever pay off.
- Google could face significant valuation downside if it does not maintain its early leadership position in AI technology.
What can we expect from Google stock in 2023?
Analysts are generally optimistic about Google’s business and stock price in 2023. The analysts covering Alphabet are projecting full-year adjusted earnings per share of $5.65 this year, up from an EPS of $4.56 in 2022. In addition, Alphabet analysts are calling for 7.7% revenue growth this year and 11.4% revenue growth in 2024.
Morningstar analyst Ali Mogharabi said Alphabet’s search and cloud businesses are growing, and its YouTube platform rebounded impressively in the second quarter.
“Accelerating growth in Google’s core search business demonstrated that the segment’s network effect moat source is intact despite threats from Microsoft and OpenAI,” Mogharabi said.
He said Google’s ecosystem strengthens and its appeal to advertisers is increasing as its products and services are adopted by more users.
“While management remained cautious about future cloud growth, we look for revenue acceleration driven mainly by increasing demand for artificial intelligence tools and features,” Mogharabi said. Morningstar has a “buy” rating and $161 fair value estimate for GOOGL stock.
CFRA analyst Angelo Zino also projects Alphabet’s sales growth will accelerate from 7.8% in 2023 to 11% in 2024.
“We see growth from YouTube accelerating in the (second half of 2023), partly aided by increasing prices and momentum from the Sunday NFL ticket, while recent search ad acceleration will bump on easier comparisons,” Zino said.
CFRA has a “buy” rating and $142 price target for Alphabet.
The 49 analysts covering GOOGL stock have a median price target of $150, suggesting double-digit upside over the next 12 months. However, investors should always conduct their research before making important investment decisions.
What can we expect in the coming years?
AI technology will be the biggest wildcard for Google in the next several years. Analysts and investors expect a heavy AI technology investment cycle in the next several years. Still, the stock market already has high expectations for Google’s Bard and other AI products and services. If Alphabet falls behind AI competitors at some point, even its dominant share of the internet search market could be at risk.
Zino said AI investments should help Alphabet maintain annual revenue growth in the 6% to 11% range through at least 2025.
“We are excited about the AI opportunities attached to GOOG, which include revenue potential in the cloud, new enterprise AI tools and efforts on the Search/YouTube side,” he said.
Merrill Lynch analyst Justin Post said ChatGPT hasn’t made much of a dent in Google’s prized search business until now.
“We see Alphabet as well positioned long term with leading search technology, Android and YouTube,” Post said.
“We believe that Alphabet should trade at a premium to a media peer group given technology leadership, high margins, and cash flow for buybacks.”
Bank of America has a “buy” rating and $146 price target for Alphabet.
Frequently asked questions (FAQs)
The median 12-month price target among the Wall Street analysts covering GOOGL stock is $150, suggesting about double-digit upside for the stock through September 2024. It’s very difficult to predict stock movement over the long term. Google’s ability to reach that consensus target and continue higher in 2025 will largely depend on whether or not the company can meet or exceed market expectations for AI technology, revenue growth and profitability.
No. Alphabet has never paid dividends to investors. Alphabet has authorized $140 billion in share buybacks in 2022 and 2023 combined, but the company said its primary use for capital is reinvesting in its long-term growth.
Yes, Google has completed two stock splits in its history, representing a cumulative 40-for-1 ratio. The stock’s most recent split was a 20-for-1 split in 2022.
Past performance does not guarantee future results, but Alphabet’s stock has consistently outperformed the S&P 500 over the long term since its IPO in 2004. There are currently 45 Wall Street analysts with “buy” or “outperform” ratings for Alphabet and none with “sell” or “underperform” ratings.
