Just six months ago, Alphabet’s (GOOGL) standing in the artificial intelligence (AI) race looked uncertain. Its flagship product, Gemini, seemed like just another large language model (LLM) in a crowded field, with no clear path to dominance. Fast forward to today, and investor doubts about Google’s AI direction have largely been put to rest. Alphabet’s blockbuster third-quarter (Q3 2025) earnings report not only signals a powerful return to growth—it cements the company’s status as a fully integrated AI powerhouse.
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With its first-ever $100 billion-plus quarter, a surging cloud division, and a tightly woven ecosystem of proprietary models, Alphabet is charting a growth trajectory that defies its enormous size. For long-term investors, any near-term pullbacks in GOOGL stock should be viewed as compelling opportunities to buy.
Alphabet’s Growing Prosperity Engine
Alphabet’s Q3 results were nothing short of exceptional. Revenue jumped 16% year-over-year to $102.3 billion—its first-ever quarter surpassing the $100 billion mark. Notably, deal sizes expanded, Google Cloud posted a record 24% operating margin, and backlog growth accelerated. These results highlight Alphabet’s ability to sustain strong margins and grow efficiently, even as it continues to invest heavily in building an AI-driven future.
The company’s profitability and robust cash generation underpin a powerful capital return strategy. Over the past 12 months, Alphabet produced $73.6 billion in free cash flow, a 32% increase from the prior year. Confident in its long-term prospects, management continues to buy back shares aggressively—repurchasing $11.6 billion worth of stock in the third quarter alone and $40.1 billion over the first nine months of 2025. This consistent buyback activity underscores leadership’s conviction that GOOGL remains significantly undervalued.
Alphabet’s AI Integration Powers Record Growth
The driving force behind Alphabet’s recent revenue and earnings surge is the seamless integration of its homegrown AI innovations across the entire ecosystem. Google’s Gemini-class models have become the backbone of the business—powering AI Overviews that modernize Search, refining advertiser targeting to deliver higher-quality leads, and propelling Google Cloud into one of the company’s most dynamic growth engines.
AI has made Google Services more innovative and more responsive than ever. Alphabet’s core advertising segment remains solid, with Google Search revenue climbing 15% year-over-year. The introduction of AI Overviews and AI Mode has driven a sharp increase in overall query growth, particularly among younger users, while simultaneously opening up new monetization channels. On the latest earnings call, Chief Business Officer Philipp Schindler highlighted that both paid clicks and cost-per-click rose 7% year-over-year—evidence that AI-powered search experiences are amplifying, not undermining, Google’s ad dominance.
Meanwhile, Google Cloud continues to be Alphabet’s breakout performer. As more enterprises adopt its AI-driven collaboration and productivity tools, revenue surged 34% year-over-year to $15.2 billion. Even more impressive, operating margins expanded to a record 23.7%, up from 17% a year ago—showing that the segment is achieving both scale and profitability in tandem. This growing strength helps diversify Alphabet’s earnings base beyond Search, even as regulatory scrutiny over its Search “monopoly” persists with limited effect.
The Cloud division’s growth runway remains vast. CEO Sundar Pichai revealed that Alphabet has signed more $1 billion-plus deals this year than in the prior two years combined. The cloud backlog now stands at $155 billion, offering exceptional revenue visibility and shielding this fast-growing business from short-term macroeconomic fluctuations.
Alphabet’s Deepening Moat: A Full-Stack AI Advantage
Alphabet’s most significant competitive edge is its status as the only hyperscaler building its cloud and AI offerings on a foundation of wholly owned, industry-leading models, such as Gemini, Imagen, and Veo. This full-stack approach is a powerful differentiator that may gain momentum with the release of the Gemini 3 model later this year.
Adoption metrics underscore the scale of this success. The Gemini app now boasts over 650 million monthly active users, cementing its status as one of the fastest-growing consumer AI products in history. On the infrastructure front, Alphabet is processing over 1.3 quadrillion AI tokens each month—a staggering 20x increase in just a year. Meanwhile, revenue from generative AI–powered products surged more than 200% year-over-year in Q3, reflecting accelerating commercial traction.
By uniting custom silicon (TPUs), foundational models, and end-user applications within a closed, self-reinforcing ecosystem, Alphabet is building durable competitive moats that few, if any, competitors can replicate.
Another factor worth mentioning is GOOGL’s cloud efforts. Alphabet’s Cloud segment has transitioned from losses to profitability since early 2023, indicating successful cost management and competitive positioning. Alongside this intentional streamlining, GOOGL’s cloud operating margins continue to bloom.
GOOGL’s Strategic AI Investments and YouTube Momentum
Beyond the headline numbers, the expanding use of Alphabet’s AI models for content creation and YouTube’s dual-engine strategy—blending a resilient advertising business with a fast-growing subscription base across YouTube Music and Premium—is poised to drive continued revenue and earnings momentum.
At the same time, Alphabet is investing strategically for sustained growth. Research and Development (R&D) spending has increased modestly to 15% of sales, while capital expenditures surged to $24 billion in the last quarter, up 83% year-over-year. Management projects total 2025 capex in the $91–$93 billion range—targeted investments designed to meet the soaring demand for AI infrastructure. Much of this spending supports the capacity for future revenue that is already locked in through Alphabet’s massive cloud backlog.
Perhaps most impressive, Alphabet’s internally developed AI tools are transforming its own operations. Nearly half of all code is now AI-generated, a milestone that reflects major productivity gains. These efficiencies enable the company to curb headcount growth and absorb inflationary pressures, even as it scales aggressively to power the next phase of AI-driven expansion.
Valuation: Alphabet Stock Commands a Premium for a Reason
With a forward P/E ratio of 27x and a forward PEG ratio of 1.8, Alphabet stock currently trades at a premium to the sector medians of 18.8x and 1.6, respectively. Both valuation metrics also sit above Alphabet’s own five-year averages of 23.8x and 1.4, reflecting heightened investor confidence in the company’s accelerating AI-driven growth trajectory.
However, Alphabet’s stock rightfully commands a premium valuation. New investors are buying into a company delivering accelerating double-digit revenue growth, surging cash flow, and undisputed leadership in the most transformative technological shift of our time.
As a blue-chip large-cap growth stock, Alphabet presents minimal execution risk. The recent expansion in its valuation multiples underscores the market’s acknowledgment that the company has successfully evolved from an AI challenger into a dominant force in the global AI landscape.
Is GOOGL Stock a Buy, Hold, or Sell?
Alphabet carries a Strong Buy consensus on Wall Street, supported by 36 analysts, including 29 Buy and 7 Hold ratings issued over the past three months. The average stock price target of $309.76 implies ~9% upside potential over the next 12 months.
AI Mania Ensures GOOGL Stock Remains a Buy
Alphabet stock stands out as a definitive Buy as the company evolves from a traditional advertising powerhouse with a cloud sideline into a diversified technology giant firing on all cylinders—with AI as the unifying force energizing every business segment. From the enduring strength of Search and the powerful monetization flywheel of YouTube to the hyperscale momentum of Google Cloud, Alphabet now operates multiple engines of growth—all reinforced by a fortress balance sheet.
The Q3 2025 earnings report clearly shows that Alphabet’s years of AI investment are now translating into tangible financial results, so for investors seeking a high-quality, growth-oriented cornerstone for their portfolio, GOOGL is a bit of a no-brainer.