Do Strong Earnings Results and a Dividend Hike Make Alphabet a Growth Stock to Buy Right Now?

Core Viewpoint - Alphabet reported strong first-quarter 2025 earnings, with a 5% dividend increase, but the stock remains down year-to-date, underperforming the Nasdaq Composite and other megacap growth stocks [1][3]. Group 1: Financial Performance - Revenue increased by 12%, operating income grew by 20%, and diluted EPS surged by 49% [3]. - The services segment generated $77.26 billion in revenue, with Google Search contributing $50.7 billion and an operating income of $32.68 billion, resulting in a 42.3% operating margin [5]. - Google Cloud revenue reached $12.26 billion, a 28% year-over-year increase, but with a lower operating income of $2.18 billion and a 17.8% operating margin due to ongoing expansion efforts [6]. Group 2: Capital Expenditures and Shareholder Returns - Capital expenditures in the recent quarter were $17.2 billion, a 43% increase compared to Q1 2024, which Alphabet can currently absorb due to strong revenue growth [8]. - Alphabet's capital return program totaled $17.5 billion, including $15.07 billion in buybacks and $2.43 billion in dividends, with a projected annual run rate of about $70 billion [11][12]. - Over the past five years, Alphabet has reduced its share count by 10.9%, contributing to faster EPS growth compared to net income [13]. Group 3: Valuation and Market Position - Alphabet has the lowest P/E ratio among the "Magnificent Seven" at 17.7, indicating a cheap valuation relative to its growth prospects [14]. - The P/E ratio of 17.7 is considered a bargain for a high-margin company with strong growth, especially when compared to Procter & Gamble's P/E ratio over 25 [15]. - The current pricing suggests skepticism about Alphabet's ability to maintain margins and market share, despite strong financial results [17].