Alphabet (GOOG 1.21%) (GOOGL 1.22%), like other tech stocks, traveled through difficult times and better times this year. The stock slipped this spring amid concern about the impact of U.S. import tariffs on corporate earnings. But as President Donald Trump negotiated with other countries, this pressure eased.
The company also faced the challenge of an antitrust suit in the U.S., but a ruling in September averted the worst-case scenario -- and this decision offered Alphabet a significant boost. Since, the stock has gained nearly 50%, and just recently, Alphabet did something it hasn't done in seven years. Is it time to buy this top tech stock? Let's find out.
Image source: Getty Images.
90% market share
First, though, let's catch up on the Alphabet story so far. This is the company behind something you may use and rely on every day: I'm talking about Google Search, the world's most popular search engine. It's steadily held onto about 90% share of the market. Google, through advertising across its platform, fuels Alphabet's revenue growth, but this isn't the only revenue driver.
Alphabet also is the owner of Google Cloud, one of the world's major cloud service providers, and that business is growing in the double digits.
NASDAQ: GOOGL
Key Data Points
On top of this, Alphabet's investment in artificial intelligence (AI) is helping the company improve its business -- for example, streamlining the advertising experience. Alphabet has developed its own large language model, Gemini, to apply to its own needs and offer to clients through Google Cloud. The cloud provider also offers many AI products and services, from chips to a fully managed service for the development of generative AI, and this has fueled growth in recent quarters.
In the latest quarter, for example, Alphabet said demand for AI infrastructure and generative AI powered a 34% gain in cloud revenue.
The elimination of a big risk
The major weight on all of this was the U.S. antitrust suit -- the risk was a potential breakup of revenue-driver Google. That risk was eliminated when a federal judge decided that Alphabet could maintain its ownership of its Google Chrome browser, and the company now faces lesser penalties.
All of this, along with a reasonable valuation, has helped boost Alphabet shares in recent months -- and help the company do something it hasn't done in seven years. On Nov. 21, Alphabet's market value soared past that of software giant Microsoft for the first time since 2018. Back then, both companies' market capitalizations were about $800 billion -- now, they've surpassed $3 trillion.
GOOG Market Cap data by YCharts
Alphabet has maintained its market cap gain, and now at $3.8 trillion, it's the biggest company after Nvidia and Apple.
Now, let's return to our question: Does this make Alphabet a stock to buy? It's key to keep in mind that a high market cap doesn't automatically translate into a buying opportunity. A company may have reached such a level but could now be overvalued or face new headwinds -- or it may not be the right fit for your portfolio.
Why a high market cap may be positive
Of course, recent gains in market cap might be positive -- they could be the result of good news that prompted investors to pile into the stock. And maintaining a high market cap over time shows sustained demand for the shares.
But, before investing, it's most important to consider a company's earnings track record, financial health, and future prospects -- and also take a look at valuation. In the case of Alphabet, there's reason to be optimistic about all of these points. The company has delivered growth in revenue and profit over time, the AI opportunity is in its early days so could spark significant growth in the quarters to come, and today, Alphabet still is reasonably priced -- it trades for 30x forward earnings estimates, which is lower than many of its AI peers.
All of this makes this stock that's roared past Microsoft a fantastic buy right now.
