Is Alphabet Stock Worth Buying Now?
Alphabet Inc. has recently demonstrated significant growth in the artificial intelligence (AI) sector, raising questions about whether its stock is worth buying now. After recording a 67% surge in stock price within a year, conventional wisdom warns investors against jumping in after such steep increases. However, Alphabet’s current position may suggest otherwise.
Strong Financial Performance
Alphabet’s third-quarter results have proven skeptics wrong, showcasing a 16% increase in sales, which reached $102 billion. The adjusted operating margins also expanded to 34%, indicating that the company’s investment in AI is not diminishing profitability.
Key Statistics
- Current Price: $320.54
- Market Cap: $3,865 billion
- Day’s Range: $317.20 – $324.97
- 52 Week Range: $142.66 – $328.67
- Volume: 1.2 million
- Average Volume: 24 million
- Gross Margin: 59.18%
- Dividend Yield: 0.26%
Growth in Google Cloud
Google Cloud is at the forefront of Alphabet’s AI monetization success, growing 34% in the last quarter. This segment now contributes 15% to the total revenue, with a remarkable 79% increase in cloud backlog, outpacing the previous quarter’s 37% growth. Such metrics indicate a pivotal moment for enterprise AI demand, which is forecasted to maintain steady growth through 2026 and beyond.
Partnership with Anthropic
In October, Alphabet announced a significant multibillion-dollar partnership with Anthropic, one of the leading AI labs. This collaboration integrates Anthropic’s innovations with Google’s Tensor Processing Unit (TPU) infrastructure, potentially generating $8 billion to $10 billion in annual revenue.
Resilience of Google Search
Despite concerns about generative AI impacting its search business, Google Search continues to thrive, witnessing a 12% growth in the second quarter and holding over 80% market share. New features integrating generative AI are enhancing user engagement rather than detracting from existing traffic.
Gemini’s monthly active users have reached 650 million, underscoring Alphabet’s competitive edge in consumer AI applications. The approach of controlling everything from AI chips to consumer applications allows Alphabet to maintain cost advantages over competitors dependent on third-party hardware.
Valuation and Investor Considerations
Currently, Alphabet trades at a multiple of 25 times projected 2027 earnings, which is above the broader market but less than many technology peers. This valuation reflects expectations of a 13% annual revenue growth over the next five years with cloud sales potentially doubling that forecast.
Financial Strength
Alphabet boasts a strong balance sheet with $98 billion in cash and only $22 billion in debt, offering financial flexibility. The company has also reduced shares outstanding by 9% over the past five years through buybacks and initiated a quarterly dividend earlier this year.
Conclusion: Is Alphabet Stock Worth Buying Now?
Alphabet’s market resurgence illustrates a growing recognition of its AI capabilities, the robust resilience of its search franchise, and the ongoing expansion of its cloud business. For investors, the company presents an opportunity not only in AI growth but also in sustainable advertising revenue. Although the stock has experienced considerable gains recently, the fundamental outlook remains positive, suggesting that Alphabet could still represent a sound investment for those willing to embrace its growth story.
