Exciting developments are happening in artificial intelligence (AI). Companies are jockeying for position, building out data centers, and looking to stake their claim as AI transforms life as we know it.
As the race for AI supremacy intensifies, attention is being drawn to prominent names like OpenAI and Nvidia. But don't overlook Alphabet (GOOG +2.41%)(GOOGL +2.44%), the parent company of Google, which is building on a strong foundation and making strides for the next wave of technological advancement.
If you have $1,000 you're looking to invest, here's why buying Alphabet stock today could be a smart move.
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How Alphabet is defending its search supremacy
Alphabet recently reported its earnings results for the third quarter, delivering stellar results that exceeded analysts' expectations. Revenue of $102 billion marked the tech giant's first quarter with revenue exceeding $100 billion. Meanwhile, earnings per share of $2.87 came in well above analysts' expectations of $2.27 per share.
Google Search has been core to Alphabet's business since its early days, and is a major driver of revenue for Google through advertising and sponsored search results. Many observers have expressed concern that the rise of large language models (LLMs) could hurt Google's advertising business. Those fears are overblown, at least for the time being.
NASDAQ: GOOG
Key Data Points
Google Search and other revenue increased 15% year over year to $56.6 billion in the third quarter. Alphabet leveraged its position as a top search engine by utilizing its own AI models and integrating them into its search results through AI Overview and AI Mode. By leveraging its own LLMs, Google saw an uptick in queries, with adoption being more pronounced among younger individuals.
Looking forward, new AI products like AI Max are helping Google monetize by opening up billions of new searches. With this tool, customers can leverage AI to automatically manage ad campaigns across Google Search. Instead of building lengthy lists of keywords or creating numerous ad variations, AI Max analyzes billions of searches and user signals in real time to match ads with people more accurately.
Cloud segment growth is robust
An opportunity for substantial long-term growth lies in the Google Cloud segment, which offers customers a suite of cloud-based solutions in two main areas: the Google Cloud Platform and Google Workspace.
The Google Cloud Platform is a suite of cloud computing services that enables companies to run applications, store data, and utilize powerful tools without the need to purchase or manage physical hardware. Here, companies can access on-demand computing power, databases, cybersecurity, and analytics across Google's global data centers, and only pay for what they use.
Through Google Workspace, customers can subscribe to cloud-based communication and collaboration tools for workplace solutions. These tools include Calendar, Gmail, Docs, Drive, and Meet, and feature integrated solutions like Gemini for Google Workspace.
In the third quarter, Google Cloud revenue reached $15 billion, representing a 34% year-over-year growth rate, up from the 32% growth rate in the second quarter. Even better news for investors is that the number of cloud deals topping $1 billion is accelerating. The company signed more Google Cloud deals exceeding $1 billion through the first nine months of this year than in the previous two years combined.
The Cloud backlog increased to $155 billion, a significant rise from $106 billion in the previous quarter. This substantial increase was driven by growing demand for both GPUs and Google Tensor Processing Units, as well as Google's AI solutions built around the Gemini platform.
Alphabet will continue to invest heavily in infrastructure like servers, network equipment, and data centers to meet this growing demand.
A quality growth stock
The AI revolution is here, and hyperscalers are investing heavily in its development. Amid this backdrop, Alphabet is emerging as a formidable force. The company has steady, cash-generating businesses in search and YouTube and looks to capture the upside in AI through its cloud services segment.
The cloud services segment will become increasingly important as AI advances and becomes more integrated into everyday life, and the upside here is a big reason why I think Alphabet is an excellent growth stock to own long term.
