Alphabet ($GOOG) announced its earnings for Q4 2024 and the whole year. The markets didn’t take too kindly to it, and the stock fell almost 7% to close at $193.30 in after-hours trading. Did the stock deserve such a fall? Does this mean you should stay away from Alphabet? Let’s take a look at the numbers.

Total Q4 2024 revenues came in at $96.5 billion (12% YoY increase), while annual 2024 revenues were $350 billion (14% YoY increase). Net income was $26.5 billion in Q4 (28% YoY increase), and annual income was $100.1 billion (36% YoY increase). EPS came in at $2.15 in Q4 (31% YoY increase). Operating margin was 32% (a five percentage point expansion).

The Sell Case for Google Stock

From a quick glance, these numbers look good, but a closer look pokes holes in them. Google Services (Search and YouTube ads) increased by 10% for Q4 at $84.1 billion, and Google Cloud increased by 30% at $11.96 billion for the same period. However, this was a slowdown from the 35% increase last year. A Reuters report said analysts were expecting a rise of 32.3% at $12.16 billion. This slowdown in cloud numbers was surprising, considering that Google had built AI features on its cloud computing platform. Sundar Pichai remarks that developer usage doubled in Gemini to 4.4 million users in six months.

Another significant news item that caused the stock to drop was that Alphabet plans to invest $75 billion in capital expenditures in AI in 2025. This is 29% more than the $58 billion that analysts estimated, compared to $52.5 billion in 2024. Markets are questioning the reasoning behind such huge AI expenditures when DeepSeek can offer similar services at a fraction of the price.

In an analyst call, Pichai said, "The cost of actually using (AI) is going to keep coming down, which will make more use cases feasible.” He added, "The opportunity space is as big as it comes, and that's why you're seeing us invest to meet that moment."

He iterated that Alphabet models were better: "And I would say both our 2.0 Flash models, our 2.0 Flash Thinking models, are some of the most efficient models out there, including compared to DeepSeek’s V3 and R1."

Should You Buy Alphabet Stock?

If you are wondering whether or not to buy Alphabet stock, the company has strategically expanded beyond advertising, leveraging multiple revenue streams. Google Services now includes consumer subscriptions like YouTube TV, YouTube Music, and Google One, alongside app sales and device revenues. YouTube maintained leadership in streaming and podcasts, while Cloud and YouTube exited 2024 at a $110 billion annual run rate.

Google Cloud generates substantial income through enterprise services, consumption-based fees, and platform services. The company's subscriptions vertical saw $11.6 billion in revenue, while the Other Bets segment (healthcare and internet services) saw $400 million. This diversification reduces reliance on digital advertising, providing more stable and predictable revenue sources.

As Pichai said, the company expects continued momentum in AI infrastructure, generative AI solutions, and cloud computing. Its enterprise AI services will likely expand, and Google Cloud will be a key growth driver. One bad quarter doesn’t make a bear case for the stock. Projected advancements in AI technologies like AI Overviews and Circle to Search indicate continuous attempts at new product monetization. Its full-stack AI approach and commitment, from AI infrastructure to integrating AI into Search and YouTube, shows it hasn’t taken its eye off the ball.

Alphabet also demonstrated a robust geographic expansion in 2024. United States revenues grew 17%, maintaining the strongest market performance. EMEA (Europe, Middle East, Africa) showed 12% growth, indicating solid international market penetration. APAC (Asia-Pacific) experienced 13% constant currency revenue growth, highlighting emerging market potential.

These figures reflect Alphabet's successful global strategy, balancing mature markets with high-growth regions. The company's ability to adapt products and services to diverse geographical contexts enables consistent revenue growth across different economic environments.

The 14% annual revenue growth and 28% Q4 net income increase demonstrates robust business fundamentals. Alphabet's financial health remains exceptionally strong. Cash and marketable securities stood at $95.7 billion. The company generated $125.3 billion in operating cash flow for 2024, with a free cash flow of $24.8 billion in Q4 alone. Share repurchases totaling $62.2 billion demonstrate confidence in company valuation and shareholder returns. The balance sheet shows a healthy debt-to-equity structure, with total assets of $450.2 billion and stockholders' equity of $325.1 billion.

Analysts are divided on the stock’s target price. Pivotal Research has a target of $225, Wedbush has a target of $200, and DA Davidson has a target of $200. Cantor Fitzgerald lowered its rating by $10 to $200. RBC is the most bullish, with a target price of $235.

Conclusion

Our view is that Alphabet’s businesses are moving in the right direction. While Google’s cloud vertical saw a decline, it’s more of a speedbump than a hurdle. The company is investing in all the right places. DeepSeek is a new entrant, and writing Google off based on a new competitor is a mistake people have made many times over this century. Google continues to grow.

One factor that people overlook in quarterly earnings is the long-term outlook. Its Waymo vertical could be a trillion-dollar business. Alphabet demonstrates robust financial performance and strategic positioning in the AI-driven tech landscape. The company's focused investments in AI, cloud computing, and core services position it strongly for future growth. Investors should watch its AI development, cloud expansion, and ability to convert technological innovations into revenue streams.

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