After a huge run over the last decade, topped off by a spectacular 2025, some investors may be wondering if Alphabet (GOOG 1.69%) (GOOGL 1.66%) can keep delivering outperformance for investors. After all, with the company's market capitalization at about $4 trillion, is the search giant still a top stock to buy? Or is the company now too large and established to keep delivering strong returns for shareholders?
Alphabet -- the parent company of Google, YouTube, Gmail, and more -- is one of the most entrenched businesses on Earth. When people want to find something, they often start with Google. And when companies want customers, they often advertise on Google and YouTube. But the more interesting part of the story may be what sits next to search and its other well-known consumer-facing digital properties: Its cloud business. Not only is Google Cloud growing faster than Alphabet's core advertising business, but it may be earlier in its growth curve.
Image source: Getty Images.
Alphabet's core business is still printing cash
Alphabet's third-quarter results once again reminded investors why Alphabet is a compounding machine. Total revenue in the period rose 16% year over year to $102.3 billion. That was driven by strength across several parts of the business, not just one.
Importantly, Alphabet's core "Google Search and other" revenue climbed about 15% year over year to $56.6 billion. With a strong core business, the company is able to confidently invest across all of its business segments.
But third-quarter growth was strong in other key parts of its business, too. YouTube advertising revenue increased 15% to $10.3 billion. And Alphabet also has another less talked-about revenue stream: subscriptions and devices. In the quarter, revenue from Google subscriptions, platforms, and devices rose 21% to $12.9 billion. This includes consumer subscription products like YouTube Premium and Google One.
However, advertising from its Google Network (revenue generated from its advertising technology products that help companies buy properties across Alphabet's own digital properties and ones it doesn't own) fell about 3% year over. But with this segment accounting for less than $7.4 billion of the company's $102.3 billion in total third-quarter revenue, this isn't a significant concern.
Overall, Google Services revenue (which includes search, YouTube, Google Network, subscriptions, and more) rose 14% to $87.1 billion.
In short, the company's core businesses remain a cash cow, enabling the company to invest in new opportunities that may carry more risk but also have long growth runways.
NASDAQ: GOOGL
Key Data Points
Here's what could power Alphabet over the next decade
If there is one part of Alphabet that can change how investors think about the company's growth ceiling, it is Google Cloud -- the company's cloud computing business.
Third-quarter Google Cloud revenue jumped 34% year over year to $15.2 billion. Even more, Google Cloud ended the quarter with $155 billion in backlog, suggesting growth will remain strong in the coming quarters.
One problem, however, is that cloud growth is costly, requiring heavy spending on technical infrastructure -- especially as demand rises for AI (artificial intelligence) and the computing power behind it. Alphabet, for instance, now expects 2025 capital expenditures to be $91 billion to $93 billion, up from a previous forecast for $85 billion.
"We are investing to meet customer demand and capitalize on the growing opportunities across the company," said CEO Sundar Pichai in the company's third-quarter earnings release.
In short, the capital-intensive nature of cloud computing in the age of AI means that the explosive growth it entails is both an opportunity and a risk. If Alphabet's cloud and AI services keep gaining traction and the business segment's economics live up to the economics management anticipates, shareholders could be rewarded. But if demand isn't as robust as expected or if costs are higher than anticipated, heavy spending can squeeze profit growth and leave investors disappointed.
So, which search giant is poised for explosive growth over the next ten years? I believe Alphabet is once again the best bet for investors looking to invest in this space.
Overall, Alphabet looks like a rare megacap company that can still compound at an unusually strong rate because it has both a durable core business and a fast-growing cloud platform. The key is whether cloud momentum stays strong enough to justify the massive infrastructure build-out. If it does, Alphabet stock is likely to outperform the market over the next decade. If it doesn't, shares could underperform. But I personally think the odds are high that the company continues delivering strong results for shareholders.
