Investors Got Scared, But This AI Giant's True Strength Never Wavered

Storytelling is powerful. Two different writers can take the exact same company and weave the same facts in very different ways to create a vision of its future, and if you're not careful, you might find both of those stories compelling. Only time tells which of those stories turns out to be closer to the truth. And in the end, the financial results a company produces are more important than the stories it and its investors told themselves along the way to justify their actions.

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is a great example of a company whose financial performance stands in stark contrast to some of the stories that investors have told about it. At one point not long ago, many investors had entirely counted Alphabet out, arguing that it had fallen hopelessly behind in key areas like cloud computing and artificial intelligence. That's a story that the first article on Alphabet for the Voyager Portfolio discussed at length. But as you'll see in this second article, Alphabet's financial strength has shown a very consistent upward trajectory that gave longtime bulls confidence that their patience would be rewarded.

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A decade of amazing growth

Alphabet's key financial metrics have shown amazing growth over the past 10 years. Between 2015 and 2025, here are some of the things the tech giant has accomplished:

• Revenue has jumped from $75 billion to over $400 billion, with a compound annual growth rate (CAGR) of over 18% per year.
• Operating income has risen from $19.4 billion to $129.2 billion, a 566% rise that works out to a CAGR of close to 21%.
• Alphabet has boosted its spending on research and development five-fold over that 10-year time span, but its operating margin has improved by more than six percentage points to 32%.
• Net income has risen to more than eight times where it started, with net margins soaring by 11 percentage points to 32.8%.
• Alphabet's capital allocation moves have included massive share buybacks that have cut its outstanding share count from about 13.7 billion shares 10 years ago to about 12.1 billion today.
• As a result, improvement in earnings on a per-share basis has been even more impressive than the rise in net income, going from $1.14 per share in 2015 to $10.81 per share last year.

What's particularly noteworthy about Alphabet's results is how consistent they've been. There been only a couple of major hits to the tech giant's upward trajectory. In 2017, the European Commission imposed a $2.7 billion fine on Alphabet, and combined with adjustments related to changes in tax laws that year, Alphabet's net income fell year over year.

Then, in 2022, Alphabet faced a combination of factors that caused net income to fall from 2021 levels. A tough market in the advertising industry weighed on the primary source of revenue for key parts of Alphabet's business, including the Google search engine and the YouTube video streaming business. At the same time, Alphabet ramped up R&D spending across its businesses as it sought to take advantage of opportunities in fast-growing areas like cloud computing and AI. It's also worth noting that the drop came after a particularly strong year in 2021, in which Alphabet saw its profits soar almost 90%. When you consider Alphabet's bottom line was up nearly 50% over the two years from 2020 to 2022, it smooths out some of the volatility that the company experienced during those challenging times.

What's next for Alphabet?

2025 was another strong year for Alphabet, with revenue and operating income climbing 15% and net income rising 32%. With so much upward momentum, the stock's massive rise last year makes sense. In the third and final article on Alphabet for the Voyager Portfolio, you'll see more about how the tech giant hopes to stick to its winning ways.

Dan Caplinger has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.