It is wise to pay attention to companies that leverage artificial intelligence to strengthen their core products. Wall Street’s interest in online search and digital advertising giant Alphabet (GOOG / GOOGL) is steadily increasing. Among the 68 analysts covering the stock, 14 give it a “Strong Buy” rating, 44 recommend “Buy,” and another 10 maintain a “Hold” view.
Wall Street’s optimism towards Alphabet primarily stems from the positive impact of AI on its core business. Contrary to earlier concerns, AI has not negatively impacted Google’s search business but has instead effectively contributed to its expansion. Through features like “AI Overviews” and “AI Mode,” Google has enhanced the overall user search experience, driving growth in both total queries and commercial queries. These intelligent experiences not only strengthen the connection between customers and businesses but also directly influence shopping behavior through search. AI models also help businesses more accurately identify user purchase intent, thereby establishing new consumer connections. These advancements collectively lead to higher user engagement and improved search monetization capabilities. Management specifically pointed out that the ad monetization rate within AI Overviews has already reached parity with traditional search, a fact that has largely alleviated investors’ short-term concerns regarding the company’s core profitability.
Regarding financial performance, in the third quarter of fiscal year 2025 (ending September 30), Alphabet’s revenue increased 16% year-over-year to $102.3 billion, marking the first time quarterly revenue surpassed the $100 billion mark. Search and other advertising revenue grew 15% year-over-year to $56 billion. Google Cloud also became a significant growth driver, with revenue increasing 34% year-over-year to $15.2 billion. Notably, Google Cloud’s backlog surged 82% year-over-year to $155 billion, reflecting strong revenue predictability. To support future development, Alphabet expects capital expenditures for fiscal year 2025 to be between $91 billion and $93 billion, primarily focused on expanding data center and server capacity to meet continuously growing demand.
Alphabet’s current forward P/E ratio is 29.2 times. Considering its diversified business structure, leading market scale, and robust financial condition, this valuation level is within a reasonable range. Empowered by the continuous advancement of AI technology, Alphabet’s products and services are consistently deepening user engagement and improving monetization efficiency, positioning it to potentially continue winning sustained favor from the capital market in the future.
