Shares of Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG), known for its Google subsidiary, are up an impressive 34% in the past year and currently trading just a few points from their all-time high.
Despite facing heightened regulatory scrutiny and questions about whether its core search business is losing its relevancy in the age of artificial intelligence (AI), the internet giant continues to post strong growth and record profitability.
Can the rally in Alphabet shares keep going in 2025? Let's explore where the stock might be in one year.
An AI-powered earnings juggernaut
Alphabet stands out through an extensive ecosystem of products and services. The company's flagship search platform, complemented by the Chrome browser and Android operating system, creates a seamless user experience. Its cloud computing division has emerged as a major player in enterprise services, while YouTube has evolved into a social media powerhouse. Alphabet's ownership of autonomous driving venture Waymo demonstrates its commitment to continued innovation.
This reach is a key part of the company's allure as an investment, with its ability to leverage synergies supporting its market-leading advertising network. Alphabet is investing heavily in AI as a key part of its growth strategy, which has already proven successful in improving operating and financial performance. New AI-powered capabilities integrated across the ecosystem enhance user engagement, while AI-optimized search algorithms work to boost advertising conversion rates.
The most significant impact is evident in Google Cloud, where a suite of AI and machine learning tools has seen exceptional demand from customers seeking to integrate AI into their applications and workflows.
Image source: Getty Images.
The result is not only an ongoing diversification beyond advertising revenue but also a shift in higher operating margins as Alphabet assumes a decisively more high-tech profile. In the latest reported period -- third quarter of 2024 -- revenue climbed by 15% year over year, propelling a 37% increase in earnings per share (EPS).
CEO Sundar Pichai described current trends as "extraordinary," projecting confidence in the company's forward outlook. Wall Street analysts anticipate continued momentum in 2025 with 11.6% revenue growth and an EPS target of $8.99, a solid 12.5% year-over-year increase.
Metric
2024 Estimate
2025 Estimate
Revenue (in billions)
$350.2
$390.7
Revenue growth (YOY)
13.9%
11.6%
Earnings per share (EPS)
$7.99
$8.99
EPS growth (YOY)
37.8%
12.5%
Data source: Yahoo Finance. YOY = year over year.
A mega-cap tech bargain
By many indications, Alphabet is firing on all cylinders, demonstrating its impressive ability to navigate the evolving AI-focused tech landscape. That being said, the company's success level and ongoing dominance in areas like search and advertising have drawn antitrust scrutiny from regulators worldwide, with several ongoing investigations regarding perceived anti-competitive practices.
In the United States, the Department of Justice has pushed for a company sale of its Chrome browser, also ruling that Google holds a monopoly in the search market. Separately, the European Union is probing Google AI's compliance with data privacy laws. While no action has been confirmed with room for appeals, the headlines cast a shadow of uncertainty.
That dynamic may explain why shares of Alphabet trade at just 21 times its consensus 2025 EPS as a forward price to earnings (P/E) ratio. This level represents a large discount to mega-cap tech peers, including internet advertising peer Meta Platforms, which trades at a forward P/E of 23, and Microsoft, with an earnings multiple closer to 32.
Nevertheless, there is still a good argument that Alphabet is fundamentally undervalued. Even in a scenario where the company is forced to sell off a particular product or service, the understanding is that shareholders would retain the underlying value with its assets independently commanding a sales premium.
On the other hand, a less drastic outcome that just requires the elimination of certain types of exclusive contracts or new requirements to facilitate access to competing platforms would likely be seen as bullish by the market. In my opinion, Alphabet in 2025 is sufficiently diversified that its long-term potential is as robust as ever.
Given Alphabet's strong fundamentals, AI leadership, and attractive valuation relative to peers, I believe its strengths outweigh the risks that are simply a reality of investing in the stock market. As long as the economic environment remains resilient, the company is well positioned to generate sustained profitable growth and reward shareholders. I predict Alphabet will be trading at a higher share price in one year.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
