Alphabet: Focus on Q4 2024 Growth Over CapEx & DeepSeek Noises
Company Update (GOOG US) (Buy): Shares fell 6.9%, but Google’s double-digit compounding is continuing, and P/E is only 23.6x.
Highlights
Revenue grew 11.8% in Q4 (10.6% in Advertising); EBIT grew 30.7%
Cloud revenue grew 30%; no reason to worry about DeepSeek claims.
High CapEx – to rise another ~45% in 2025 – ultimately not a concern.
23.6x P/E, 1.5% FCF Yield represent a disconnect, but both are good.
At $191.60, we see 90% total return (18.0% p.a.) by 2028 year-end. Buy.
Introduction
We review our Buy rating on Alphabet after the release of Q4 2024 results on Tuesday (February 4) evening. Alphabet (Class C) shares fell 6.9% the day after results, but remain 32.9% higher than a year ago:
Alphabet Class C Share Price (Last 1 Year)
Source: Google Finance (06-Feb-25).
We initiated our Buy rating on Alphabet in January 2021 and have included it in our “Select 15” model portfolio since its inception at the start of 2023; the position is currently showing a 118% gain in our model portfolio. Alphabet is also one of our largest positions in real life, and we have periodically added to our holding during market corrections.
We believe Alphabet is continuing a multi-year compounding journey, and recent negative headlines about revenue slowdown, rising CapEx and DeepSeek are misguided. We discuss each of these and Q4 results in turn below.
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