The technology sector started 2022 with some of the biggest question marks over it since the dotcom crash more than two decades ago, however the largest and highest quality US tech names continue to deliver the answers the market wants with big earnings beats.
Google-owner Alphabet is the latest company to do so with its latest numbers demonstrating its awesome reach across search-based, digital and video advertising.
The wall of cash this generates is being put to work, invested in areas like artificial intelligence and helping to bolster Alphabet’s competitive advantage.
“The company’s dominant position underpins extremely high margins and returns. Typically, when a business generates such stellar returns it either attracts rivals looking for their own slice of the action or the attention of regulators,” said AJ Bell’s Russ Mould.
“There seems limited risk of any other business having the ability or the means to park their tanks on Alphabet’s lawn. However, the threat of regulation is real with authorities in Europe and the US conducting inquiries into its dominant position. The company is also being sued by several US states over privacy violations.
“The other speck of grey on the horizon and an area where Alphabet is trailing somewhat, although only relative to behemoths like Amazon and Microsoft, is in cloud computing though it is growing strongly here in its attempt to play catch up.
“The decision to introduce a stock split – thereby reducing the price of the individual shares – may have no impact on the value of a shareholding or the company but it makes the stock easier to swallow like kids’ alphabet shapes and therefore more attractive to ordinary investors.
“The company is following in the footsteps of both Apple and Tesla which introduced their own more modest stock splits on the same day in August 2020, and both enjoyed big gains following the move.”