Alphabet (GOOG -6.88%) (GOOGL -7.12%) was once a laggard in the artificial intelligence (AI) race, but no longer. Its Gemini generative AI model has been recognized as one of the top options, and it is the most used, with its integration into Google Search.
Alphabet has other AI aspirations, but its current business is putting up incredible numbers, and it shows that the company has the ability to compete over the long run in AI.
Despite the company's impressive third-quarter results and a slight stock uptick, I think it's well worth buying today, since it will be an AI leader for many years.
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Alphabet generated more than $100 billion in revenue during Q3
Alphabet isn't the first to cross $100 billion in quarterly revenue; it has been done by multiple other businesses before. But what makes the company so impressive is the profit it has produced. During the third quarter, revenue rose 16% year over year to $102 billion. Of that, it turned 33% into net income of $35 billion, making it the world's most profitable company.
This gives Alphabet a leg up in the AI race since it has larger cash flow than its peers. Management has chosen to invest in AI infrastructure and lean heavily into its cloud computing to rent out its capacity to other aspiring companies.
The cloud segment had another impressive quarter, with revenue rising 34% year over year to $15 billion. Its operating margin soared from 17% last year to nearly 24% this year, showing its growing profitability. It indicates Google Cloud is reaching a turning point in build-out versus operation, but once AI computing capacity is completely built out, this segment could become a huge cash cow for Alphabet.
NASDAQ: GOOGL
Key Data Points
However, the star of the show was Google Search, one business that was assumed to be permanently disrupted by the rise of AI. But that hasn't come to fruition: In the third quarter, Search's revenue rose 15% year over year.
An impressive quarter like that indicates that its hybrid strategy of blending traditional search and generative AI is working, even though investors feared it wouldn't work earlier this year. Now it's confirmed (at least in the short term) that Alphabet will be just fine. It's going to be a force to be reckoned with throughout the AI race -- but is it a stock to buy now?
Alphabet is still far cheaper than its peers
The stock surged following the news, which increased the company's valuation. However, Wall Street analysts aren't very bullish on its future. Next year, they believe, Alphabet will increase revenue by 11% despite showcasing strong growth all year. Furthermore, management expects earnings per share to decrease due to management's extensive build-out plans.
Based on these considerations, the best valuation tool for Alphabet's stock is trailing earnings. From this perspective, it trades for 30 times earnings, which is still cheaper than most of its big tech peers.
GOOG PE Ratio data by YCharts. PE = price to earnings.
While this isn't necessarily cheap from a broader market perspective, Amazon is cheaper than its peers, especially when the business is executing at a higher level. I think this makes the stock a buy at these levels because it's showcasing strength during one of the most important technological revolutions we've experienced.
I think Alphabet's AI future is incredibly bright, and it will continue to be a top stock pick throughout the end of 2025, into 2026, and beyond. Although shares rose significantly after earnings, I still think there's a strong buying opportunity here because it trades at a discount to some of its peers.
