5 Reasons Behind Recent Google Stock Gains
Google’s AI and cloud endeavors have significantly contributed to the company’s stock gains.
- Multiple factors have led to Google’s recent stock gains. Being a member of the Magnificent 7 has its pros and cons, but the search engine company seems to be riding the tide well.
- Let’s look at how the AI revolution, stock buyback initiative, and the Google Cloud, among other reasons, drove the recent stock uptick.
As rational individuals, we have an innate tendency to seek explanations for occurrences. This is especially true when it comes to stocks. Investors like to assign meaning to the fluctuating performances of stocks. Conventional investors target companies with standout characteristics such as superior products, market dominance, or a stellar management team. On the other hand, technical traders scrutinize historical trends and patterns to discern indicators based on market sentiment and investor psychology.
As I am by no means a technical investor, I will refrain from charting the performance of Google’s stock. I will stick to traditional indicators of why this stock has been surging lately. However, let’s remember the historical lesson of the 1920s when U.S. Steel was a coveted investment due to its consistent stock value and dividends. Despite its robust product line, management, and leadership, the stock tumbled by 90% in 1930, like most other stocks during the crash.
Its laudable characteristics became irrelevant in the face of the economic downturn. I share this example to underscore the need to consider any insights I provide with a degree of skepticism.
See more: Google Gets Relief as Judge Dismisses a Few Antitrust Allegations
Prime Factors Contributing to Google’s Stock Growth
Let’s examine the five factors that have recently propelled Google’s stock to new heights.
1. The Magnificent 7
Membership has its privileges. Right now, it pays to be part of the Magnificent 7. I’m not talking about the seven gunslingers of the classic Western movie of the same name. I am referring to those seven tech stocks surging in 2023. The seven magnificent Nasdaq stocks include Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla. These heavy hitters were coined “The Magnificent Seven” by an analyst from Bank of America earlier this year. These seven stocks accounted for 73% of the S&P gains in the first half 2023.
Being a part of a trendy acronym helps. In 2013, CNBC finance personality Jim Cramer coined the FAANG group of stocks — Facebook, Amazon, Apple, Netflix, and Google. This illustrious group of stocks has provided hefty returns to investors since Cramer’s reference. Year to date, FAANG has returned just over 68% and an annualized return of more than 26% for the past ten years. Not bad. If you knew to invest in FAANG, you would look like a genius.
If you were investing in the late 90s, you probably remember the four horsemen that dominated the markets back then. Those stocks were Microsoft, Intel, Cisco, and Dell Computer. Like the four horsemen of the apocalypse, these stocks did take a beating in the Internet Bubble that saw the Nasdaq crash 77% before bottoming out.
Sometimes, the reason behind a stock’s substantive performance is as simple as being a member of the right acronym. You don’t have to understand PE ratios, earnings per share, or dividend yields. Buying the Magnificent 7 or FAANG seems to be a winning strategy until, of course, it isn’t.
2. The AI revolution
The stellar performance of Google’s stock this year can be largely attributed to two pivotal letters: AI. You may notice that all the members of the Magnificent 7 are major players in the AI movement. Any conversation about artificial intelligence is invariably connected to Google, considering the pervasive search algorithms that most internet users depend on. Google’s AI reach extends beyond search, powering developments in voice recognition, natural language processing, and autonomous vehicles.
Much like how digital transformation reshaped the business world in the last decade, AI is poised to bring forth the next transformation phase. One of the realities of AI is that it favors big companies as its successful implementation calls for considerable financial investment, a broad operational scope, and robust technological infrastructure. Additionally, the competition to attract and keep high-caliber talent in the AI field is intense. Google stands out in meeting these prerequisites and has forged a significant lead in the AI arena.
See more: Google Speeds Up Efforts to Rival Microsoft in AI Search
3. Stock buyback initiative
Google announced a $70 billion buyback initiative of its stock in April of 2023, which accounted for a 3% uptick in its stock price immediately afterward. This is on top of the $70 billion stock buyout they authorized in April 2022. Google repurchased more of its own stocks than any other company besides Apple in 2022.
Stock buybacks lift stock prices in several ways. Reducing the number of its outstanding shares through the buyback increases its earnings per share (EPS), assuming net income remains the same. EPS is a key indicator investors use to measure a company’s profitability. Stock buybacks are often interpreted as the management’s belief that the company’s shares are undervalued, thus boosting investor confidence. Finally, if a company has excessive cash on hand, a stock buyback can put its capital to productive use.
4. Google Cloud
With all the hype of AI recently, the cloud may have been somewhat forgotten. It is still a big deal as companies continue migrating applications and services to the cloud. You also can’t have AI without the aid of the cloud. While Google still has a long way to catch up with AWS or Microsoft Azure, Google cloud revenue grew 28% year over year and posted a 5% operating profit for the 2nd quarter this year, up from 3% the previous quarter. While it might be on top of the mountain, Google Cloud is proving to be a player.
5. An anticipated soft landing
As anyone who has ever used Google Search can vouch, Google is very good at delivering ads to its users. Advertising makes up a big part of Google’s revenue, and advertising usually takes a hit in recessionary times. Over the past year, a chorus of economists and financial analysts had heralded an impending recession expected to surface in 2023, a prediction some have labeled history’s most anticipated recession. However, the anticipated economic slump is yet to materialize. The expectation now is what is referred to as a “soft landing,” sparking increased optimism regarding Google’s advertising business, which was initially projected to face a significant impact in the latter half of 2023.
Is There a Guarantee of Future Results?
I will close this with the usual disclosure you often hear at the end of a financial advertisement. Past performance is no guarantee of future results. While these five reasons seem to substantiate Google’s recent surge in its stock price, tomorrow is another day. But due to the company’s technological dominance, it is safe to assume that Google stock will be higher a year from now.
Do you think Google’s stock will continue on its upward trend? Share with us on Facebook, Twitter, and LinkedIn. We’d love to hear from you!
Image source: Shutterstock
MORE ON TECHNOLOGY
How the Metaverse Is Changing the Internet Forever
Worldcoin Unwrapped: 6 Things to Know About the Ambitious Global Currency Project
X (Twitter) Launches Global Program to Incentivize Content Creation on the Platform
