Alphabet Surprises Market with Robust Q1 Earnings Growth

Alphabet GOOGL shares rose as much as 4% during today’s trading session after the tech giant surpassed Q1 earnings expectations in after-hours trading on Thursday.

The strong performance comes at a critical moment, as ongoing regulatory scrutiny regarding the company’s market dominance has negatively impacted its stock. Despite today’s gains, GOOGL shares are down 14% year to date, while they have grown 37% over the last three years, slightly outperforming the Nasdaq’s 32% and the S&P 500’s 32% during the same period.

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Alphabet’s Strong Q1 Results

CEO Sundar Pichai reported healthy growth across various business segments, particularly in new AI-enabled features. Alphabet’s Q1 sales grew 13% to $76.48 billion, up from $67.59 billion in the same quarter last year, and surpassed expectations of $75.52 billion by 1%.

Key contributors included Google Search, YouTube advertising, and Google Cloud, all of which achieved double-digit growth in revenue. As a result, Alphabet’s Q1 earnings per share (EPS) reached $2.81, exceeding expectations of $2.02 by 39% and jumping 48% from $1.89 per share in the previous year.

Additionally, Alphabet has exceeded the Zacks EPS Consensus for nine consecutive quarters, with an average earnings surprise of 14.64% over the last four quarters.

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Alphabet’s Cautious Outlook

While Alphabet did not release specific full-year forecasts, it anticipates that advertising revenue from its Google services may decline due to strong comparisons with last year’s performance in the financial services sector.

The company also indicated that its cloud services face a tight supply-demand environment, leading to fluctuations in revenue growth rates based on capacity deployment. However, it expects to ramp up capacity installations toward year-end.

According to Zacks estimates, Alphabet’s total sales are projected to grow by 9% in fiscal 2025, followed by a further 10% increase in FY26 to $355.95 billion. Earnings per share are expected to rise 8% this year, with a projected spike of 14% in FY26, reaching $9.90 per share.

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Alphabet’s Dividend Increase

In Q1, Alphabet returned $15.1 billion to shareholders through share repurchases and $2.4 billion in dividends. Notably, the company announced a 5% increase in its quarterly dividend, alongside a new $70 billion share repurchase authorization.

This marks Alphabet’s first dividend increase since it began paying dividends in June 2024. The new annual dividend will rise from $0.80 to $0.84 per share.

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Conclusion & Final Thoughts

Given its robust Q1 performance, further growth in Alphabet’s stock seems likely. However, significant gains will depend on adjustments in earnings estimates as analysts evaluate the company’s cautious outlook. Currently, Alphabet stock holds a Zacks Rank of #3 (Hold).

Alphabet continues to provide long-term value, with GOOGL featuring the lowest forward P/E ratio among the top tech stocks, though there may be more favorable buying opportunities ahead.