Shares of Google parent Alphabet (GOOG -1.14%) (GOOGL -0.98%) surged 35.5% in 2024, according to data from S&P Global Market Intelligence.
Alphabet entered 2024 under a cloud of skepticism regarding its competitiveness in the AI races, and also amid pressure from antitrust authorities.
While those headwinds didn't go away -- they actually intensified -- Alphabet executed impressively against them, both technologically and financially. These positives outweighed the negatives, leading to a strong year of gains.
A rocky start got better as Alphabet got to work
Alphabet has a number of segments, but all are fairly dependent on artificial intelligence technology. Given the rapid rise in AI competition from incumbents and startups alike, Alphabet entered 2024 besieged on all fronts. Yet the company executed impressively against these challenges.
For instance, in February, Alphabet's Imagen 2 image generator powered by Alphabet's Gemini large language model (LLM) came under criticism after users produced people of color in German uniforms when asking Imagen to create a picture of Nazi soldiers. Yet when Imagen 3 was rolled out about six months later towards the end of the year, the updated image generator drew rave reviews.
This was just one example of Alphabet overcoming technology hurdles to regain industry-leading status on par with OpenAI and others. This culminated in December with the rollout of Gemini 2.0, Google's upgraded family of LLMs which also drew a positive reception from technologists.
While Gemini is probably the most important update to get right, Alphabet also showed impressive innovation in its more future-looking ventures. In December, the company unveiled Willow, a quantum computing chip that management said completed a calculation in five minutes which traditional computing technology couldn't complete in the time the entire universe has existed!
Alphabet's self-driving car unit Waymo also showed progress, seemingly hitting escape velocity in 2024 after years of being perceived as a money-losing science experiment. In 2024, Waymo delivered over four million rides, building on the mere one million it had completed coming into the year. In June, Waymo expanded its San Francisco service, first launched in 2023, to the entire city and surrounding area. In April, Waymo then launched city-wide service in Los Angeles. Waymo also announced it will expand to Austin and Atlanta in 2025, then Miami in 2026.
Image source: Getty Images.
Re-assuming technology leadership across artificial intelligence applications is crucial for Alphabet, but what was really impressive was the company delivered this innovation in conjunction with strong growth and margin expansion.
While investors feared AI might threaten Google's Search franchise, Search actually grew a solid 13.4% through the first nine months of 2024. Additionally, Google Cloud accelerated its growth by 30.9% over that time, delivering impressive numbers against its larger competitors. Meanwhile, operating margins for the overall company expanded from 27.4% to 32.1% over the first nine months.
Given that Alphabet came into the year trading at a lower multiple compared with the other Magnificent Seven stocks, its excellent financial results propelled Alphabet to strong gains.
The government is also weighing on Alphabet's business
One issue to monitor, and which may put a cap on Alphabet's valuation near-term, is the antitrust headwinds Alphabet continues to face. In August, a federal judge ruled Alphabet held an illegal monopoly in the Search market. Meanwhile, another Department of Justice case accuses Alphabet of having an illegal dominance of online ad technology generally, with that trial awaiting a ruling.
Still, Alphabet plans to appeal the August ruling, and one Wall Street analyst recently suggested the new Administration, perceived as pro-business, may encourage a less-onerous punishment or remedy for Alphabet.
Despite the regulatory overhang, 2024 was an encouraging year for Alphabet, as it countered several competitive threats while also delivering strong profit growth for shareholders. Look for Alphabet to remain a formidable player in the AI era, which at this point looks to be more of a tailwind than a threat at this point.
