Alphabet, Google’s parent company, rallied on Monday and surpassed a $ 2 trillion market value for the first time, fueled by rising digital ad spending and the growth of its cloud business.
Its Class A shares rose 1.2% to a record high, with the recent rally extending into its fifth session. Alphabet is the leader among the five largest US technology companies this year, with growth of more than 70%, mainly driven by the growth of Google’s advertising business.
The rise in share prices puts the company in an exclusive club alongside Apple and Microsoft, the latter of which also hit the $ 2 trillion milestone this year. In January 2020, parent company Google hit the $ 1 trillion mark for the first time.
“This is just a number, but I think it demonstrates that these are leading companies,” Kim Forrest, founder and chief investment officer of Bokeh Capital Partners, said in an interview. “It’s really that simple – the market rewards their growth and their growth prospects with high ratings.”
Alphabet is the best performing stock this year among the top five US tech companies by sales, and bulls are looking forward to further gains in the stock due to their lower valuation and higher growth rates than most of its metropolitan peers. RBC Capital Markets analyst Brad Erickson said he remains positive about Alphabet and said it is “overcrowded for a reason.”
Google was founded in dorms at Stanford University in 1998, three years after co-founders Larry Page and Sergey Brin met. Page and Brin hired experienced executive Eric Schmidt to transform their popular startup into a more mature business in 2001. On August 19, 2004, the company went public on the Nasdaq exchange, its shares were valued at $ 85 with a market value of $ 23 billion.
The following years saw rapid product growth with acquisitions of Android and YouTube, as well as the development of Maps, Chrome and Google Cloud, a line of business services. The company used most of the additional platforms to power its ad engine and in the process became the world’s largest digital advertising hub.
Alphabet was formed in 2015 as the parent company to Google, a move that allowed Page and Brin to restructure the business. Alphabet has set up ambitious future projects dubbed “Other Bets”, including autonomous driving company Waymo. Sundar Pichai, a longtime executive, was named CEO of Google in 2015 and Alphabet in 2019 following Page’s departure.
Pichai has been marked by growing conflicts between Google and its staff, as well as rapid growth in revenues and profits. In 2020, despite the fact that the COVID-19 pandemic resulted in a shrinking advertising market, Google generated $ 147 billion in ad revenue.
Alphabet is virtually the unanimous favorite on Wall Street. Of the 49 analysts that Bloomberg monitors for stocks, all but one recommend buying Alphabet stock. The average 12-month target price for the stock is $ 3,321, which implies an 11% return on the current stock price.
“Given the particularly compelling response from COVID, YouTube’s ever-increasing engagement and monetization, and GCP’s drive for profitability, we see good reason to own this name,” Erickson wrote in a post on October 26, citing Google Cloud Platform.
On Oct. 26, Alphabet reported third-quarter sales that beat analysts’ estimates, reflecting sustained spending by advertisers. Evercore ISI analyst Mark Mahani wrote in a memo that Alphabet’s results were “among the most impressive” in recent years, despite major hurdles.