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Alphabet Enters the $3 Trillion Club

Alphabet (GOOG) (GOOGL) became the newest member of the $3 trillion market cap club on Sept. 15, after its shares received a boost from news about a favorable court ruling. Previously, Apple (AAPL) became the first company to reach this milestone about seven years ago. Since then, the biggest tech companies in the world have only grown bigger and wielded even more influence over the stock market. Alphabet has since been joined by Microsoft and Nvidia, both of whom have benefited from growing demand for artificial intelligence (AI).

Impact of the Court Ruling

Alphabet faced a lawsuit alleging antitrust violations with its Google search engine and its stranglehold over the search advertising market. The company faced potential remedies that could have significantly hurt its earnings and operations. Some speculated that it would have to divest its Chrome web browser or Android operating system. But the judge's ruling was much more lenient, allowing Alphabet to continue making deals as a default search engine as long as it didn't require exclusivity. Not only was the ruling a boon for Alphabet's stock, it also meant Apple could hold on to a key component of its services business, as Alphabet's biggest contract is with Apple, which makes Google the default search engine across billions of devices.

What Could Drive the Company to a $4 Trillion Market Cap?

The potential remedies were not the only thing impeding Alphabet's stock. Many fear that growing competition from AI chatbots like ChatGPT will eat into Google's market share. However, the impact of those alternatives has yet to show up in Alphabet's financial results. In fact, its Google search revenue accelerated last quarter, growing 12% year over year.

AI and Cloud Computing

On top of that, AI is driving considerable growth for Alphabet's cloud computing business. It surpassed a $50 billion run rate in the second quarter, and its operating margin expanded to 21%. Operating margin could expand as Alphabet scales up its operations. Alphabet's Waymo self-driving car business could provide another catalyst for stock growth.

Multiple Expansion

Even after the price appreciation that pushed the company's value above $3 trillion, the stock currently trades for just 25.7 times forward earnings estimates. If Alphabet's multiple expands to just 29 times forward earnings by the end of next year, the company will be worth well over $4 trillion based on current estimates for 2027 earnings. Investors should monitor how its AI strategies develop and are implemented, as well as the growth of its cloud business and the evolution of its "Other Bets" ventures to determine if Alphabet can truly achieve this ambitious milestone.

Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.

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