Alphabet Surges 16% with Historic Dividend and $70B Buyback; Dominates AI Landscape Amidst Rivals' Moves
Alphabet announces first-ever dividend and $70 billion stock buyback. Shares surge by nearly 16% after the announcement. Alphabet beats expectations in sales, profit, and advertising metrics.
Alphabet, the parent company of Google, made a significant announcement on Thursday that delighted investors and caused the stock to surge by nearly 16% after the bell. The tech giant revealed its first-ever dividend and a $70 billion stock buyback, signaling its commitment to returning capital to shareholders.
This move comes as Alphabet continues to invest heavily in data centers to keep up with competitors in the field of generative artificial intelligence. The dividend payout will amount to 20 cents per share, a welcome bonus for investors who have been eagerly awaiting a return on their investment.
Just a few months ago, Alphabet's rival, Meta Platforms, also known as Facebook, announced its own first-ever dividend, which resulted in a staggering $196 billion increase in the company's market value the following day. Interestingly, Amazon.com remains the only major tech firm that has not yet offered a dividend to its shareholders.
Alphabet's impressive performance in the quarter exceeded expectations across various metrics, including sales, profit, and advertising. These are closely monitored indicators that reflect the company's overall health and growth potential.
Thomas Monteiro, a senior analyst at Investing.com, commented on Alphabet's strategic move, stating, "Alphabet's announced dividend payouts and buybacks, combined with the solid earnings beat, not only breathe fresh air into the tech market but also demonstrate a very intelligent strategy for the search engine giant, especially during challenging times."
Following the release of the earnings report, Alphabet experienced an after-hours surge of nearly 16%, resulting in a staggering increase of its market value by approximately $300 billion, pushing it over the $2 trillion mark.
During a call to discuss the results, CEO Sundar Pichai highlighted the positive impact of Google's AI offerings on its core search results. Pichai expressed his satisfaction with the increased usage of search among users who are utilising AI overviews.
In terms of revenue, Alphabet reported $80.54 billion for the quarter ending on March 31, surpassing estimates of $78.59 billion, according to LSEG data.
The strong performance in the first quarter was driven by the growing demand for Alphabet's cloud services, fueled by the increasing adoption of artificial intelligence and steady advertising spending. Advertising sales rose by 13% to $61.7 billion, surpassing the average estimate of $60.2 billion.
Alphabet faced challenges in the previous quarter when its ad sales fell short of expectations, causing a decline in share prices. The company faced intensified competition from the likes of Amazon.com, Facebook, and emerging platforms like TikTok. The future of TikTok remains uncertain after President Joe Biden signed a bill that could potentially ban the popular app if it is not sold within the next nine to twelve months.
On the other hand, Google Cloud revenue experienced a remarkable growth of 28% in the first quarter, driven by the increasing demand for generative AI tools that rely on cloud services to deliver cutting-edge technology to customers.
Alphabet's capital expenditures for the quarter amounted to $12 billion, representing a significant 91% increase compared to the previous year. This figure was higher than anticipated, according to Hanna Howard, a portfolio manager at Gabelli Funds.
Despite the surge in capital expenditures, CFO Ruth Porat assured analysts during the call that she expects such spending to remain at a similar level or even higher throughout the rest of the year. This reflects Alphabet's commitment to investing in the development of artificial intelligence offerings.
Porat also mentioned that the operating margin in 2024 is expected to be higher than the previous year, without providing further details.
Google's cloud services have gained popularity among venture capital-backed startups that are focused on developing generative AI technologies. The attractive pricing and ease of integration with other tools make Google an appealing choice for these startups.
However, Google faced criticism for its AI-powered chatbot, Gemini, which was found to generate historically inaccurate images, including those of former U.S. leaders and World War Two-era German soldiers. The company acknowledged the issues and is actively working to address them.
Alphabet announces first-ever dividend and $70 billion stock buyback
Shares surge by nearly 16% after the announcement
Alphabet beats expectations in sales, profit, and advertising metrics
Source: REUTERS