Following a strong 2025 so far, shares of Alphabet (GOOGL -1.03%) (GOOG -1.17%) are trading near all-time highs. The company, which owns Google, YouTube, Gmail, and Google Cloud, has seen benefits from a recovery in advertising markets and rapid adoption of artificial intelligence (AI) features across its platforms. The stock's recent performance is supported by solid business fundamentals rather than speculation.
Looking deeper, Alphabet's business momentum is broad-based. The company is delivering healthy growth in advertising, subscriptions, and cloud services. Taken together, these factors suggest Alphabet remains a compelling opportunity among the "Magnificent Seven," even after its recent gains.
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A handful of catalysts
Alphabet's latest quarterly results showed steady and broad-based momentum. Second-quarter revenue climbed 14% from last year to about $96.4 billion, led by double-digit growth in Search, YouTube ads, subscriptions, and Google Cloud. Operating income also grew 14%, while net income jumped 19%, thanks to both rising sales and careful cost management. YouTube ad revenue rose 13%, and its Google services segment operating income increased 11%. Altogether, these numbers highlight the ongoing strength of Alphabet's advertising business and the increasing impact of subscriptions like YouTube Premium and Google One.
Management's commentary reinforces this momentum.
"We had a standout quarter, with robust growth across the company," Alphabet CEO Sundar Pichai said in the company's earnings release. "We are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum."
Cloud is becoming a profit center
But the biggest part of the bull case -- and what arguably makes Alphabet the best Magnificent Seven stock to buy (when combined with its healthy balance sheet and attractive valuation) is its cloud computing business.
Google Cloud is now emerging as a significant earnings driver for Alphabet. In the latest quarter, Alphabet's cloud revenue grew 32% to about $13.6 billion, and Google Cloud's operating income more than doubled to $2.8 billion. The segment's operating margin expanded from 11.3% to 20.7%, and backlog increased 38% year over year to approximately $106 billion. This combination of strong growth, higher margins, and a growing backlog provides Alphabet with a durable source of earnings beyond advertising.
To support this growth, Alphabet is making significant investments in AI infrastructure and capacity, with capital expenditures expected to reach about $85 billion in 2025.
Despite higher spending and increased depreciation, the company generated approximately $66.7 billion in free cash flow over the past twelve months and finished the quarter with around $95 billion in cash and marketable securities. Alphabet also returned capital to shareholders through about $13.6 billion in share repurchases and $2.5 billion in dividends during the quarter, supported by a $70 billion buyback authorization. These numbers underscore a strong balance sheet that can support both growth initiatives and shareholder returns.
Of course, there are risks. Higher capital expenditures will continue to drive up depreciation, which could weigh on reported operating margins. Alphabet also faces ongoing regulatory scrutiny in various regions. However, the company's broad-based growth across Search, YouTube, subscriptions, and Cloud, along with its strong balance sheet, help offset these risks.
A compelling valuation
Alphabet shares are not inexpensive on an absolute basis, but the current price-to-earnings multiple in the high-20s appears attractive given the company's double-digit revenue growth, expanding Cloud margins, and strong free cash flow. The stock seems priced for solid execution rather than perfection -- a reasonable expectation for a company as robust as Alphabet.
For investors considering the Magnificent Seven, Alphabet's combination of broad-based growth drivers, accelerating Cloud profitability, significant AI investment, and active share repurchases makes it a strong candidate.
