Alphabet GOOGL is infusing artificial intelligence (AI) heavily across its offerings, including Search and Google Cloud, driving top-line growth. GOOGL dominates the digital advertising and search domains that generate significant advertising revenues, hitting $264.59 billion in 2024. Google Cloud revenues surged 30% year over year to $12 billion in 2024, driven by core cloud products, AI infrastructure, and Generative AI (GenAI) tools like Vertex AI and Gemini. GOOGL’s plan to buy Wiz for a whopping $32 billion will enhance Google Cloud’s security offerings, driving further growth.

Meanwhile, Alphabet’s autonomous driving platform, Waymo, is now expanding to Japan in collaboration with GO, a leading Japanese taxi platform, and Nihon Kotsu, Tokyo's largest taxi company. The Waymo service is already available in Phoenix, San Francisco, and Los Angeles, with more than four million fully autonomous rides in 2024 alone. GOOGL is expanding Waymo services to Austin and Atlanta on the Uber app this year. In partnership with Moove, Waymo will be available to Miami in 2026. Waymo One app will be available to Washington D.C. riders in 2026.

Will these factors drive Alphabet’s prospects this year? Alphabet shares have declined 16% year to date due to challenging macroeconomic conditions post U.S. President Donald Trump’s decision to levy tariffs on trade partners, including China, Mexico and Canada. Sluggish cloud growth and higher investments on developing cloud infrastructure is a headwind for Alphabet stock.

GOOGL Stock Performance

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GOOGL is suffering from a lack of capacity, and until new capacity comes online in 2025, cloud revenues are expected to see increased variability. The company expects to invest roughly $75 billion in capital expenditures in 2025, which is aimed at building up technical infrastructure, primarily for servers, followed by data centers and networking. 

So, what should investors do with GOOGL stock? Let’s find out.

GOOGL’s Enhanced AI Portfolio, Wiz Buyout is a Catalyst

At its Cloud Next 2025 conference in Las Vegas, GOOGL unveiled Ironwood, its seventh-generation Tensor Processing Unit (TPU), expected to be available later this year. Google Cloud unveiled its Cloud Wide Area Network (Cloud WAN), giving enterprises access to its private global fiber network. Alphabet showcased Willow, its new quantum chip while on the AI model front, Alphabet launched Gemini 2.5, its most advanced reasoning model, alongside Gemini 2.5 Flash, a low-latency, cost-efficient version tailored for developers.

Alphabet’s initiatives to deploy AI and infuse AI in Search are expected to drive top-line growth. Circle to Search is driving additional Search and is gaining popularity among younger users. Vertex usage increased 20 times in 2024, with strong developer adoption of Gemini Flash, Gemini 2.0, Imagen 3 and Veo. GOOGL recently launched Gemma 3, a collection of lightweight, state-of-the-art open models that can run on a single GPU or TPU.

Meanwhile, the Google-Wiz combination will offer security offerings that are supported on multi-cloud and are expected to tackle threats emerging from the advancement of AI, prevent breaches and help enterprises respond to breaches more efficiently. Wiz has a stellar clientele with its cloud security platform currently used by Amazon AMZN, Microsoft MSFT and Oracle ORCL. 

The Wiz buyout reflects the growing importance of Google Cloud in the company’s growth plans. The segment accounted for 12.4% of total revenues in 2024, growing 30.6% over 2023, better than the 26% growth it registered in 2023 over 2022. The addition of Wiz to Google Cloud will boost competitive prowess against the likes of Amazon Web Services and Microsoft Azure in the cloud computing space.  Per Statista, which cited Synergy Research Group data, Amazon’s share in the worldwide cloud infrastructure market amounted to 30% in the fourth quarter of 2024, ahead of Microsoft’s Azure platform at 21% and Google Cloud at 12%.

GOOGL has expanded its collaboration with Oracle, announcing an industry-first partner program and the upcoming availability of Oracle Base Database Service on Oracle Database running on Google Cloud. The service now supports Oracle Exadata X11M and offers Oracle Interconnect for U.S. Government Cloud customers. To meet rising customer demand, Oracle and Alphabet plan to expand its availability to 11 new regions over the next 12 months.

Earnings Estimate Revisions Show Upward Trend for GOOGL

The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at $2.04 per share, up a couple of cents over the past 30 days, indicating 6.88% year-over-year growth. 

The consensus mark for 2025 earnings is pegged at $8.93 per share, up 3 cents over the past 30 days, suggesting 11.07% year-over-year growth.
 

Alphabet’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 11.57%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

GOOGL Stock is Overvalued

The Value Score of C suggests a stretched valuation for Alphabet at this moment.

Alphabet stock is trading at a premium, with a forward 12-month Price/Sales of 5.73X compared with the industry’s 4.68X.

Price/Sales Ratio (Forward 12 Months)

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GOOGL shares are trading below the 50-day and the 200-day moving averages, indicating a bearish trend.

GOOGL Shares Trade Below 50-Day & 200-Day SMAs

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Conclusion

Alphabet’s growing GenAI capabilities and significant investments in cloud computing present a potential catalyst for the future amid stiff competition in the cloud space and increasing regulatory headwinds. GOOGL’s dominant position in the search engine market and strong position in the cloud are long-term drivers.

Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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