Key Takeaways
- Alphabet shares climbed 33.8% during April, marking the company’s strongest monthly showing in over two decades
- First-quarter revenue increased 22% year-over-year to reach $109.9 billion; Cloud business exploded 63% to $20 billion
- Google Cloud’s customer commitment backlog skyrocketed to $468 billion from $243 billion in just one quarter
- The tech giant announced plans to sell TPU chips directly to customers, entering Nvidia’s territory
- Wall Street analysts remain overwhelmingly bullish with 86% assigning Buy ratings; J.P. Morgan maintains GOOGL as its top pick
Alphabet’s stock finished April with a remarkable 33.8% gain, delivering its most impressive monthly return since October 2004. The spectacular rally stemmed from both positive momentum across tech stocks and an outstanding first-quarter earnings announcement delivered on April 29.
Shares exploded 10% higher on April 30 in the immediate aftermath of the quarterly results.
The company reported first-quarter revenue of $109.9 billion, representing 22% year-over-year expansion. Google Services generated $89.6 billion in revenue, up 16%. The real headline belonged to Google Cloud, which delivered explosive 63% growth to reach $20.0 billion.
Earnings per share landed at $5.11, crushing the Street consensus of $2.63. Much of the beat originated from $36.9 billion in unrealized investment gains on private equity holdings ā notably Anthropic and SpaceX. Operating income, which provides a clearer view of core business performance, expanded 30% to reach $39.7 billion.
Cloud Commitment Backlog Jumps to $468 Billion
CEO Sundar Pichai highlighted one figure during the earnings call that captured Wall Street’s attention. Google Cloud’s backlog of customer commitments exploded from $243 billion in the previous quarter to over $460 billion ā effectively doubling in three months.
J.P. Morgan’s Doug Anmuth described it as “the single-most impressive metric this earnings season thus far.” Management indicated that more than half of this massive backlog should materialize as revenue within the next 24 months.
Cloud contracts account for 99% of the total backlog figure.
Meanwhile, the core Search advertising business demonstrated continued strength. Search revenue expanded 19% year-over-year in the first quarter, representing the fourth consecutive quarter of accelerating growth in this segment.
In the wake of the report, more than 40 Wall Street firms increased their price targets on the stock. Among 74 analysts monitored by FactSet, 86% now carry Buy-equivalent ratings. J.P. Morgan maintained its Overweight stance while boosting its price target from $395 to $460.
Google Challenges Nvidia With Direct TPU Chip Sales
Pichai unveiled a strategic shift on the earnings conference call. The company plans to sell its proprietary Tensor Processing Units (TPUs) directly to a limited group of enterprise customers for deployment in their private data centers.
Previously, TPUs were exclusively available through rental arrangements on Google Cloud infrastructure. This strategic pivot positions Alphabet as a more direct rival to Nvidia in the lucrative data center AI chip marketplace.
During April, the company launched its eighth-generation TPU lineup ā including the TPU 8t designed for AI model training and the TPU 8i optimized for AI inference workloads.
D.A. Davidson’s Gil Luria observed that hardware sales have already contributed significantly to the cloud backlog expansion. However, he raised questions regarding the cost economics and implementation details of these direct TPU arrangements.
Luria stood among the minority of skeptics following the earnings release, maintaining a Neutral rating while increasing his target from $310 to $375. He suggested the strong operational performance is “well reflected in the current valuation.”
Alphabet shares have appreciated 23% year-to-date and an impressive 135% over the trailing twelve months. The company’s market capitalization now approaches Nvidia’s valuation.
J.P. Morgan’s Anmuth stated: “GOOG/L remains our top overall pick, and we believe shares will continue to go higher on both earnings revisions & multiple expansion.”
As of Monday’s session, GOOGL was changing hands near $382.20.
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