Alphabet Inc closed decisively above a US$2 trillion market capitalisation for the first time on Friday, as a powerhouse earnings report reassured investors that the Google parent would be a major player in artificial intelligence (AI).

The stock rose 10% to US$171.95, its biggest one-day jump since July 2015, resulting in a valuation of US$2.15 trillion. The advance added almost US$200 billion to the company’s market capitalisation, making for one of the largest single-day value adds in stock market history. Shares have risen 23% this year, compared with a 5.3% gain in the Nasdaq 100 Index. 

The US$2 trillion milestone followed the company’s results, where revenue beat expectations on the strength of its cloud-computing unit. Cloud demand was fuelled by growth in AI, while Alphabet also cheered investors by introducing a dividend and announcing a US$70 billion buy-back programme.

“Alphabet is tremendously well managed, its free cash flow is absolutely astonishing, and it has a massive research and development budget, so while no one knows what company will have the best AI products, this is a tough one to bet against,” said Wayne Kaufman, the chief market analyst of Phoenix Financial Services.

While the stock breached the US$2 trillion level on an intraday basis in 2021, and again earlier this month, this is the first time Alphabet has closed above it. Doing so puts it into rarefied territory - only Apple Inc, Microsoft Corp, Saudi Aramco, and Nvidia Corp have surpassed the threshold. Nvidia - driven by massive demand for its AI chips - surpassed US$2 trillion earlier this year, while Amazon.com Inc isn’t far from US$2 trillion itself.

The path to US$2 trillion has been somewhat rocky. The stock has been volatile amid some high-profile criticism about the company’s AI offerings, and prior to the latest report, some investors had questioned its ability to compete with firms like OpenAI in this critical area despite spending heavily in the field for years. 

Wall Street remains broadly positive on the stock, as nearly 85% of the analysts tracked by Bloomberg recommend buying. Both earnings and revenue are expected to grow at a double-digit pace every year through 2026. 

In addition, the stock continues to look like something of a bargain. Shares trade around 23.5 times estimated earnings, making it among the cheapest of the so-called Magnificent Seven. The stock also trades at a discount to the Nasdaq 100, and is only modestly above its 10-year average multiple.

  - Bloomberg