Artificial intelligence (AI) technology is currently in its early phases of growth, but it is expected to gain rapid traction in the coming years thanks to its adoption across multiple industries, including cloud computing, automotive, and advertising.
According to one estimate, the AI industry could generate a whopping $2 trillion in revenue by 2035. So, the recent drop in AI stocks thanks to the tariff-fueled tensions means that investors can now buy some solid companies set to benefit from the fast-growing adoption of this technology at attractive valuations.
We are going to take a closer look at one such name -- Alphabet (GOOG 0.20%) (GOOGL 0.41%) -- which has pulled back substantially of late but has the potential to win big from the proliferation of AI.
NASDAQ: GOOG
Key Data Points
Alphabet's growth should improve thanks to AI
Search engine giant Alphabet is down almost 20% in 2025 as of this writing. The stock's decline can be attributed to the broader market sell-off as well as concerns that the company may have fallen behind in the AI race as compared to its rivals. However, Alphabet's growth has been picking up, which is evident from its 2024 financial performance.
The company's revenue growth rate improved to 15% in constant currency last year, up from 10% in 2023. Alphabet's adjusted earnings growth also improved by 11 percentage points in 2024, with its bottom line growing 38% year over year. The company has been integrating AI into several applications, spanning from its search engine to cloud infrastructure to workplace collaboration tools.
For instance, Alphabet points out that the Google Gemini AI assistant now powers "seven products and platforms with over 2 billion users." On the other hand, the company's Circle to Search feature is also gaining traction among users, considering that Google has made it available across 200 million Android devices. Alphabet CEO Sundar Pichai points out that this feature is driving an improvement in search volumes.
This should help Google maintain its dominance in the search engine market, where it reportedly has a 90% market share. Another thing worth noting here is that Google is trying to aggressively push Gemini into the hands of more users. The company reportedly plans to hit 500 million Gemini users by the end of the year, and its partnership with Samsung could come in handy in achieving that goal.
Gemini is the default AI assistant on Samsung's latest smartphones, and Alphabet is reportedly trying to enter into a similar arrangement with other Android device makers. The company is currently offering users a free and paid version of Gemini, and it is expected to eventually offer an ad-supported version of its AI assistant.
This could give Google's ad revenue a nice boost in the future. Meanwhile, the company's Google Cloud business is also accelerating thanks to AI. Alphabet reported a 30% increase in Google Cloud revenue in the fourth quarter of 2024, up from the 25% growth it reported in the year-ago quarter. Pichai attributed this stronger growth to increased demand for its AI-powered cloud services. He said:
First, Google Cloud. Our AI-powered cloud offerings enabled us to win customers such as Mercedes-Benz, Mercado Libre, and Servier.
In 2024, the number of first-time commitments more than doubled compared to 2023. We also deepened customer relationships. Last year, we closed several strategic deals over $1 billion, and the number of deals over $250 million doubled from the prior year.
It won't be surprising to see Google's cloud business recording healthy growth levels for a long time to come, as the demand for AI services in the cloud could grow at an annual rate of 30% through 2032. If Google manages to land more customers for its cloud services thanks to its investments in custom AI processors that help reduce AI training and inference costs, it could sustain the strong growth of its cloud business.
The company is planning to spend $75 billion in capital expenditures this year, adding that it will spend most of that on servers and data centers. Alphabet's 2025 capex projection points toward a 43% increase over last year, indicating that the company is set to aggressively pursue the AI opportunity. While this is likely to negatively impact the company's earnings growth this year, it should set it up for stronger growth in the long run.
The valuation and earnings growth potential make this stock worth buying right now
Alphabet's pullback has brought its trailing earnings multiple down to 19, while the forward earnings multiple is even more attractive at 17. What's worth noting is that the company is expected to clock 11% earnings growth despite the big jump in capex this year.
GOOG EPS Estimates for Current Fiscal Year data by YCharts
However, don't be surprised to see Alphabet's earnings growth turn out to be better than consensus estimates if it manages to win a bigger share of advertisers' wallets or successfully monetizes Gemini. The opportunity in cloud computing is another area that could supercharge Alphabet's earnings growth in the long run.
All of this makes Alphabet a no-brainer AI stock to buy right now, considering its cheap valuation and solid long-term growth prospects, as discussed above.
