Alphabet to surpass $2tn valuation after announcing first dividend

Alphabet announced a 15 percent increase in revenue for its first quarter. It also announced its first ever dividend of 20 cents per share, along with a $70 billion stock buyback. This was boosted by an increase in earnings across all its business lines.

Google’s parent, Alphabet, reported a revenue increase of $80.5bn over $69.8bn in the previous year, exceeding analysts’ expectations of $79bn. The announcement was made on Thursday. Earnings per Share reached $1.89 – up from $1.17 a year ago and above the $1.53 average estimate.

After-hours trading saw shares rise as much as 13%, allowing Alphabet’s market cap to increase by more than $250bn and surpass $2tn. It would then join its “Magnificent 7” counterparts Microsoft, Apple, and Nvidia. Microsoft reported higher than expected earnings Thursday.

Sundar Pichai, Alphabet’s chief executive, said that the quarter was a “strong result from Search and YouTube” and Google is “well underway with our Gemini Era”, referring Google’s generative AI large-language model.

He added, “Our leadership in AI infrastructure and research, as well as our global product footprint, positions us well for the future wave of AI innovation.”

The first-quarter cash dividend, worth nearly $2.5bn is a symbol of the policy change for the tech giant. Previously, it had only returned money to investors through share purchases.

This follows a similar decision by Meta earlier in the year, and highlights how US tech firms are now willingly giving investors a larger share of their huge cash reserves rather than hoarding it for investment or acquisitions.

This is a huge boost for Pichai who was criticised by rivals for not commercialising generative AI as quickly, especially in light of Microsoft’s $13bn OpenAI partnership and the much-hyped ChatGPT, despite its technology being developed in-house.

This also helps Google move on from its setback last February when it paused the image generation of Gemini after a furore erupted over its inaccurate depiction in history of different ethnicities.

Google’s and Microsoft’s financials and AI investments plans were in focus due to the experience of Meta. Shares of the social media group fell 11 percent after Mark Zuckerberg, chief executive of Facebook, said that he would be spending billions more on AI than he had planned. He warned that costs would need to rise “meaningfully” before revenue could be generated from these new products.

Microsoft’s revenue for the quarter increased by 17 percent to $61.9bn. This was driven by cloud computing and a surge in demand for AI services on Azure.

Google’s Cloud revenue grew by 28 percent to $9.6 billion as companies sought to access the computing power and chip infrastructure for training LLMs and riding the AI wave.

Alphabet capital expenditure increased to $12bn, exceeding the forecast of $10bn. Chief financial officer Ruth Porat stated that the company will spend at least this amount each quarter for the remainder of the year.

This means that spending will increase to at least $48,3bn by 2023 from $32,3bn, a nearly 50 percent increase.

Microsoft’s capex also increased during the quarter, from $11.5bn to $14bn.

Analysts noted improvements in Alphabet’s operating margin. It increased to 32% from 25% a year earlier, exceeding expectations of 29%. Porat stated that the measure validated his “ongoing efforts” to “durably reengineer our costs base”.

Brad Erickson, RBC Capital Markets, said: “The margins were significantly above expectations. This was perhaps the most important factor in the large after-hours movement of the stock.”

Erickson said that the data “provides an important point of reference for management’s commitment in delivering cost savings within the next few year”.

Google’s advertising revenue from search and YouTube, which makes up more than three quarters of its top line, increased by 13 percent to $61.7bn. This compares with the analysts’ consensus estimate of $60.2bn.

Google’s annual I/O Developer Conference will be held on May 14-15 at Mountain View headquarters.