Alphabet (GOOG 0.34%) (GOOGL 0.50%) has gone on an impressive run over the past year. It's up around 100%, which is incredible considering that Alphabet is now the second-largest company in the world. However, after a run-up like that in a relatively short time frame, investors may be asking themselves if Alphabet stock still has room for more upside in the future.
Let's take a look at Alphabet's rise and future, and see if there's more in store.
Image source: Getty Images.
Alphabet's valuation is reaching new heights
Alphabet is better known as Google's parent company. A year ago, the Google Search engine was largely presumed to be obsolete and soon to be replaced by generative AI.
However, that hasn't happened. Instead, Google has masterfully integrated AI into the traditional Google Search engine to give users an AI overview for many of the searches they conduct. This is the most exposure that a large majority of the population will have to AI, and Google being the face of it is good for its future.
Despite its legacy status, Google Search still knows how to get it done from a growth standpoint, with revenue rising 19% year over year during Q1. That places it among the best-performing Alphabet segments, but it isn't even touching Google Cloud.
Google Cloud is Alphabet's cloud computing division, and its revenue grew at an impressive 63% pace in Q1. This growth rate highlights two things. First, there is a massive demand for Google Cloud's servers and AI computing capabilities. Second, Alphabet is making a ton of money from selling its in-house custom AI chips to external customers. Those sales are included in the Google Cloud growth rate, giving it a further boost.
NASDAQ: GOOGL
Key Data Points
All of this adds up to a company that's posting solid growth for its size and maturity, with revenue rising 22% year over year and operating income increasing 30%. There's nothing to gripe about regarding Alphabet's core business, but after the stock has doubled in the past year, investors need to look at valuation.
Alphabet's shares trade at about 25 times forward earnings, which isn't necessarily expensive for a big tech company. However, it's not cheap either. The S&P 500 trades for 22.2 times forward earnings, which indicates that Alphabet trades at a premium to the market. However, with Alphabet growing faster than the market, this slight premium is likely worth it.
Alphabet's stock was clearly undervalued a year ago, but that's no longer the case after a meteoric rise. While it's not a screaming deal right now, it's also not a bad investment and will likely outperform the market moving forward if it can keep up its high, double-digit growth rates.
