Amid a broad weakening in the U.S. tech sector recently, Alphabet (GOOG) (GOOGL), Google’s parent company, has seen its stock price retreat approximately 7% from its high earlier this month. The market is actively discussing the impact of artificial intelligence on the software industry, as well as the staggering capital expenditure plans of tech giants including Alphabet. Against this backdrop, investors are beginning to focus: Has the time come to buy Alphabet stock?
From a fundamental perspective, the company has not shown any signs of weakness. Quite the contrary, Alphabet delivered an impressive report card for the fourth quarter last year: Revenue increased by 18% year-over-year, accelerating from the 16% growth rate in the previous quarter; earnings per share grew strongly with a 31% year-over-year increase.
“Overall, our investments and infrastructure in artificial intelligence are comprehensively driving revenue growth,” said Sundar Pichai, CEO of Alphabet, during the fourth-quarter earnings call. He explained that AI is not only fueling the development of Google Cloud — with quarterly revenue in this segment surging 48% year-over-year and backlog increasing 55% quarter-over-quarter to $240 billion — but is also strengthening the core search business.
Pichai pointed out that the search business is entering a “period of expansion” empowered by AI, with search usage reaching an all-time high in the fourth quarter. Furthermore, “AI is reshaping the YouTube experience,” with over 1 million YouTube channels using its AI creation tools daily in December, and more than 20 million viewers using the new Gemini-powered Q&A feature throughout the month. Its autonomous driving ride-hailing platform, Waymo, now completes over 400,000 ride services per week. Notably, Alphabet’s generative AI application, Gemini, has surpassed 750 million monthly active users.
Leveraging strong momentum in the AI field, the company is heavily investing in expanding its cloud computing infrastructure. Chief Financial Officer Anat Ashkenazi revealed that the company projects capital expenditures to be between $175 billion and $185 billion in 2026. These investments will be used to expand AI computing power, optimize core Google services, and meet the growing computing demands of enterprise customers.
Building upon its already robust and diversified business portfolio, Alphabet is approaching a performance inflection point driven by AI. Operating profit for the fourth quarter reached $35.9 billion, of which the rapidly growing Google Cloud contributed approximately 15%. The remaining revenue came from its diverse Google services portfolio, including Google Search, YouTube, advertising on non-Google websites, subscriptions, platforms, devices, and other services.
Looking at specific segments, both the “Google Search & other” segment and the “Google Subscriptions, Platforms, and Devices” segment achieved 17% year-over-year growth in the fourth quarter, while YouTube advertising revenue also recorded a 9% increase.
With AI now not only propelling Google Cloud but radiating across the entire business ecosystem, the tech stock’s current price-to-earnings ratio of approximately 29.5 times appears quite attractive. Although substantial expenditures may pressure profit margins within the year, current investments are expected to unlock value for several years to come, strengthening competitive advantages and accelerating long-term growth potential. From this perspective, the current valuation is within a reasonable range.
Of course, risks persist: If AI investments fail to achieve the returns anticipated by management, the stock’s valuation could prove to be excessively high in hindsight. However, given Alphabet’s long-standing prudent capital allocation strategy, the market widely views this as a genuine turning point for both the company and its stock.
