"Because artificial intelligence (AI), that's why. Citing "greater regulatory clarity," says Citi, Alphabet says it will release new products more quickly than in the past, building on its dominant position in internet advertising. In particular, Citi's looking to see Alphabet roll out its Gemini AI product across all the company's advertising and cloud businesses, capitalizing on its investments in AI."
"According to data from S&P Global Market Intelligence, since OpenAI released ChatGPT in late 2022, Alphabet's capital spending (on chips and server farms and other AI infrastructure, primarily) has more than doubled. Over the last 12 months, Alphabet's spent a staggering $67 billion on capital expenditures, such that today, roughly half the company's operating cash flow is immediately consumed by capex. Result: Free cash flow at the company grew just 11% total over the last three years."
Alphabet reached a $3 trillion market capitalization following a Citi price-target increase to $280 driven by AI expectations and perceived greater regulatory clarity. Citi expects faster product rollouts and deployment of Gemini AI across advertising and cloud to leverage Alphabet's ad dominance and AI investments. Capital spending has more than doubled since late 2022, with roughly $67 billion spent in the last 12 months and capex consuming about half of operating cash flow. Free cash flow grew only 11% over three years, reducing the case for calling Alphabet a growth stock or a clear buy.
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