Key Points
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AI is helping boost Alphabet’s search capabilities.
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Google Cloud enjoys impressive multiyear revenue visibility.
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Alphabet’s valuation is justified considering its scale, growth prospects, and AI momentum.
Wall Street is getting increasingly fond of online search and digital advertising giant Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Of the 68 analysts covering the stock, 14 have “strong buy” ratings, 44 have “buy” ratings, and 10 have “hold” ratings.
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Why Wall Street favors Alphabet
Wall Street’s optimism around Alphabet is rooted mainly in one reason. Unlike previously predicted, artificial intelligence (AI) has not dramatically disrupted Google’s search business but has actually helped expand it.
The AI Overviews and AI Mode features have improved the overall search experience, leading to increased total and commercial queries. These AI experiences have also enhanced how customers connect with businesses and are influencing shopping behavior through Google Search. AI models are also helping businesses better understand purchasing intent, which is useful in building new consumer connections. All this is translating into higher consumer engagement and better monetization for Search. Management has noted that advertisements within AI Overviews are monetizing at the same rate as traditional search. This has reduced investor concerns about the company’s core cash engine, at least in the short run.
Financials and valuation
In the third quarter of fiscal 2025 (ending Sept. 30, 2025), the company’s revenue soared 16% year over year to $102.3 billion, marking the first time it crossed the $100 billion quarterly revenue milestone. Search and Other advertising revenue grew by 15% year over year to $56 billion. Google Cloud has also become a crucial growth catalyst, with revenue surging 34% year over year to $15.2 billion. Google Cloud’s backlog also rose 82% year over year to $155 billion, highlighting multiyear revenue visibility.
Alphabet has estimated its capex investment for fiscal 2025 to be around $91 billion to $93 billion, mainly to support increasing demand for data center and server capacity.
Alphabet trades at 29.2 times forward earnings, which seems reasonable considering its diversified business, scale, and strong financials. With AI helping deepen engagement and improve monetization of its offerings, the stock is well positioned to continue being a Wall Street darling for several more years.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.