Alphabet announced its first-ever dividend and $70 billion in stock buybacks on Thursday, to the delight of investors whose stock price soared nearly 16% after the bell.
Google’s parent company is giving back capital while spending billions on data centers to catch up with rivals in generative artificial intelligence. The dividend will be 20 cents per share.
Just three months ago, Alphabet’s Big Tech rival Meta Platforms announced its first-ever dividend, boosting the social media company’s stock market value by $196 billion the next day. Amazon remains the lone holdout among Big Tech companies that don’t pay dividends.
Alphabet beat expectations for the quarter, with sales, profits and advertising all being closely watched metrics.
“Alphabet’s announced dividend payments and share buybacks based on its strong performance are not only a breath of fresh air across the tech market, but also a very smart strategy for the search engine giant as it faces a tough time this year.” said Thomas Monteiro, senior analyst at Investing.com.
Alphabet’s after-hours stock price rose nearly 16% on the news, increasing the company’s stock market value by about $300 billion to more than $2 trillion.
In a call to discuss the results, CEO Sundar Pichai touted Google’s AI products as a boon to the company’s core search results. “We’re pleased to see search usage increasing among people using AI Overview,” he said.
Revenue for the quarter ended March 31 was $80.54 billion, compared to expectations of $78.59 billion, according to LSEG data.
The search company’s first-quarter revenue growth was driven by increased demand for cloud services on the back of increased adoption of artificial intelligence and stable ad spending.
Google reported a 13% increase in ad revenue to $61.7 billion in the quarter. This compares to an average estimate of $60.2 billion, according to LSEG data.
Alphabet is coming off a fourth quarter in which ad sales fell short of targets amid increased competition from Amazon, Facebook and new entrants such as TikTok, sending its stock price plummeting. The latter faces an uncertain future after President Biden signed a bill that would ban popular apps if they are not sold within the next nine to 12 months.
Meanwhile, Google Cloud’s revenue rose 28% in the first quarter, driven by a boom in generative AI tools that rely on cloud services to provide technology to customers.
Alphabet’s capital expenditures were $12 billion, up 91% from a year ago, a number that Gabelli Funds portfolio manager Hannah Howard called “better than expected.”
Still, CFO Ruth Porat said on a conference call with analysts that such spending will be at or above that level throughout the year as the company spends to build out artificial intelligence products. He said he expected to die.
Porat said operating margins in 2024 will be higher than last year despite a surge in capital spending, but he did not elaborate.
Google’s cloud services are attractive to venture capital-backed startups developing generative AI technology because of their pricing and ease of integration with other tools, investors and experts have previously said. said.
Google is touting its AI-powered chatbot Gemini as a panacea for automating everything from coding to document creation. However, the software was widely criticized after it was found to have produced historically inaccurate images of former U.S. leaders and World War II-era German soldiers, among others.
Google said it is aware of the issue and is working on a resolution.
