Alphabet (GOOG +1.78%) (GOOGL +1.68%) has been an excellent artificial intelligence (AI) investment over the past year or so, but it's down a bit from its all-time high. Right now, you can scoop up shares while they're off about 15%, which is normally a pretty good buying opportunity.
I think the market has fallen a bit asleep at the wheel with Alphabet's stock, and that its blowout earnings later this month could kick-start a major rally, leading to new all-time highs. That makes it a great stock to consider buying in October.
Image source: The Motley Fool.
Alphabet has major growth ahead
The sheer amount of money that hyperscalers like Alphabet are spending right now might be a hurdle for some investors. For 2026, Alphabet projects data center capital expenditures between $195 billion and $205 billion. That's a boatload of money, and it's consuming all of Alphabet's free cash flow. Many investors would like Alphabet to take a more measured approach to AI, but that's not what it's doing.
Alphabet is going all-in on AI and computing capacity, and it's already starting to see the fruits of its labor.
Alphabet has a few ways to benefit from AI. First and foremost, it has integrated AI search overviews into its Google Search engine and provides many searches with a quick AI summary. This is how the majority of people interact with AI right now, and it drives monetization of search results at a similar rate, which is why a mature platform like Google Search was able to grow its revenue at a respectable 17% pace in Q2.
NASDAQ: GOOG
Key Data Points
Alphabet also has several large language models that can be integrated into various platforms, which will allow it to monetize token usage. However, there is no bigger beneficiary than Google Cloud, its cloud computing wing.
Google Cloud is a platform that allows users to rent computing power, and for many AI firms without access to adequate computing power, it's the most cost-effective way to scale. Alphabet is seeing simply incredible demand and has a $514 billion backlog. For reference, Google Cloud had revenue of $24.8 billion and grew at an 82% pace. As more of Alphabet's data centers come online, Google Cloud's revenue growth will continue to rise and lead the company to new heights.
When Alphabet reports Q3 earnings later this month, expect Google Cloud revenue growth to come into focus, and it could even cross into the triple-digit growth territory. This will lead to soaring revenue growth and profits for Alphabet, and could be the very combination it needs to set a new all-time high.
As a notable boost, Alphabet's stock isn't all that expensive anymore.
Alphabet stock looks attractively priced
Right now, Alphabet's price-to-earnings ratio is skewed. It had a major gain on an investment from Space Exploration Technologies, and it could be a long time before its price-to-earnings ratio normalizes, as an impending Anthropic IPO would also have a major effect on its P/E ratio.
So, I think investors should focus on Alphabet's cash from operations, which is the amount of cash the company generates each quarter.
GOOG Price to CFO Per Share (TTM) data by YCharts
While 22 times operating cash flow has historically been a bit expensive for Alphabet, the reality is that this is a great price to pay compared with some of its big tech peers. Apple trades for 32 times cash from operations, while Nvidia trades for 41.
Alphabet stock is a great buy now, and I think investors who scoop up shares will be rewarded with a new all-time high after Q3 earnings are released later this month.
