Meet the Most Profitable Company in America (It’s Not Apple or Microsoft)

Apple (NASDAQ:AAPL | AAPL Price Prediction) and Microsoft (NASDAQ:MSFT) are two of the largest companies, but it’s actually Google’s parent company, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), that has recently emerged as the most profitable company. Both companies have high profit margins, but Alphabet has more growth opportunities that can translate into rapid margin expansion. Here’s how Alphabet recently became the most profitable company. 

Artificial Intelligence Has Become A Major Growth Engine

Alphabet has capitalized on the AI boom by enhancing its search engine results and online ad placements, but that’s far from the only way Google’s parent company used this technology to surpass Apple’s profits. While search and online ads are still important, Google Cloud has emerged as a substantial catalyst.

Google Cloud acts as the digital foundation for many businesses, especially enterprises that want to scale their AI capabilities. This part of Alphabet’s business has always been a faster grower, but growth rates have accelerated in recent quarters. For instance, Google Cloud revenue soared by 48% year-over-year in Q4, with AI enterprise demand contributing heavily to those numbers.

Alphabet also has the Gemini App, its answer to ChatGPT, which has more than 750 million monthly active users. Most people use the free version of Gemini, but it has monthly subscription plans that come with additional features. It can become a long-term profit engine for the company in addition to its growing online advertising and cloud computing segments.

Alphabet can put profits back into the business

Google Cloud wasn’t always profitable. It took approximately 15 years for Alphabet’s cloud platform to become profitable, but it’s now a major source of earnings growth. The tech company is still investing in smaller companies within its corporate umbrella that can gush with cash in the future.

The Gemini App is one example, but investors are also getting excited about Waymo. This part of the business focuses on Alphabet’s self-driving cars, which have been deployed in several U.S. cities. Alphabet hopes to give Uber (NYSE:UBER) a run for its money and gain market share in the ride-hailing industry. 

This type of advantage lets Alphabet gobble up market share in new industries quicker than companies that must operate under deep losses for several years. If a business idea flounders, Alphabet can always reallocate capital into a new venture or keep more of the profits for itself. In this way, Alphabet is still operating like a startup, which can produce much higher margins in the future.

Alphabet Stock Has Crushed Apple And Microsoft

Investors have been liking Alphabet’s recent results, making it the top-performing Magnificent Seven stock over the past year. Surprisingly, Alphabet and Nvidia (NASDAQ:NVDA) are the only two Magnificent Seven stocks that have comfortable leads over the S&P 500. While other Magnificent Seven stocks are held back by decelerating revenue growth rates and concerns about capital expenditures, Alphabet continues to charge ahead.

Shares are up by more than 60% over the past year and have almost tripled over the past five years. The stock only comes with a 0.28% yield, but Alphabet is in a strong enough financial position to give out meaningful dividend hikes in future years, especially as its capital expenditures translate into higher profits.