Alphabet's AI Innovations and Market Position: A Promising Outlook for 2025

My Surprising Top "Magnificent Seven" Stock Pick for 2025 | The Motley Fool

The so-called "Magnificent Seven" stocks, consisting of seven of the world's largest technology companies, once again helped lead the market higher in 2024. All seven stocks in the group, which includes Apple, Amazon, Alphabet (GOOG 1.72%) (GOOGL 1.54%), Meta Platforms, Microsoft, Nvidia, and Tesla, are on track to have positive returns this year. Nvidia was the pack leader for the second year in a row, up over 168% year to date as of this writing, following an over 238% return in 2023. With the strong performance of the group over the past two years, the question on many investors' minds is which of these stocks will lead the group next year. While a case can be made for any of the seven, my prediction is that Alphabet will lead the way in 2025. Picking Alphabet as the "Magnificent Seven" stock most likely to outperform in 2025 is undoubtedly a bold choice. After all, a federal judge earlier this year ruled the company was an illegal monopoly that had acted unfairly to keep its search dominance. Meanwhile, investors have been worried about the impact of artificial intelligence (AI) on its search business from competitors. Essentially, these two ideas contradict each other, as a monopoly can't be facing heavy competitive threats, but Alphabet's stock nonetheless was caught in the middle of this debate for much of the year. Essentially, it was heads Alphabet loses, tails Alphabet loses. But it is this lose-lose narrative that should help Alphabet thread the needle when it comes to the remedy phase of its antitrust case. Meanwhile, the appeal process will likely drag this out for quite some time. Ultimately, Google became the leader in search because it has the best product, so much so that Apple has said Microsoft couldn't pay it any amount of money to make Bing its exclusive search engine. Today, new AI-powered search solutions have emerged from ChatGPT's SearchGPT and Perplexity AI. These search engines aim to give users direct responses without having to sift through link-based search results. That's great, but it's something that Google Search is also currently doing through its AI Overviews. And while there were some notable early gaffes, these results have just gotten better and better. Meanwhile, Google has an established ad network and a huge user base. Both of these will be needed to adequately monetize AI search. These upstart competitors will need to gain a meaningful amount of users to draw in enough advertisers for their searches. In the meantime, they will likely continue to burn through a lot of cash as they try to accomplish this. Thus far, Google has seen little impact on its business, with its search revenue growing a solid 12% year over year last quarter. Furthermore, with the company only serving ads on about 20% of its search results historically, the emergence of new types of ads attached to its AI Overviews should become a revenue driver in the future. At the same time, though, these new competitors should be deemed enough of a threat for the company to avoid any severe penalties with its antitrust case. Meanwhile, Alphabet's innovation has recently started to come to the forefront. The company was one of the first to develop its own custom AI chips with the help of Broadcom. When its cloud computing business saw its revenue soar 35% last quarter to $11.4 billion, the company credited its combined use of graphic processing units (GPUs) with its new custom tensor processing units (TPUs) as a key differentiator that helped reduce inference processing times and lower costs. Meanwhile, this high fixed-cost business has seen an inflection point, leading to its operating income surging to $1.95 billion from $1.2 billion in the second quarter and $266 million a year ago. Alphabet has also recently been able to upstage OpenAI and its 12 days of OpenAI through a number of its own announcements. This includes the introduction of new cutting-edge updates to its AI image and video generation tools. OpenAI recently introduced an AI video generator, Sora, but the big criticism has been that the movements do not look natural while its max output is 1080p. Google's Veo 2 will be able to be in 4K, while the company has said it features "improved understanding of real-world physics and the nuances of human movement and expression, which helps improve its detail and realism overall." Having seen a demonstration on X with people giving random prompts, I think the product is quite remarkable. It will also help to get rid of the pesky finger artifact problem that AI seems to have. Alphabet also introduced its new Gemini 2.0 AI model, which it says can act as an autonomous AI agent. Agentic AI is considered the next evolution of AI, where AI bots will start to do things on your behalf. Alphabet plans to incorporate Gemini 2.0 with its AI search overviews and then expand it to other products. Perhaps one of the company's biggest announcements, though, was that the company made a big breakthrough in quantum computing with its new Willow chip. Quantum computing's biggest issue has been errors as it scales up, but Willow has shown the ability to drive errors down while scaling up. Commercial use of the technology is still far off, but Alphabet has now shown that it is the lead in this emerging field. Investors are getting a lot when they invest in Alphabet. First and foremost, they are getting a dominant search engine that has a big potential monetization opportunity with AI ahead of it. They are also getting one of the top video streaming services with YouTube as well as a top ad network. Investors also receive one of the big three cloud computing companies, which has just hit a profitability inflection point. Next, investors get the early leader in autonomous driving with Waymo, which is already operating in multiple cities. They are also getting a company at the cutting edge of quantum computing, as well as a leading AI research company with its DeepMind subsidiary. This is a great mix of leading and upstart businesses that investors can get at a forward price-to-earnings ratio (P/E) of under 22, making it one of the cheapest mega-cap tech stocks out there. This combination of value, industry leadership, and valuation makes Alphabet my top Magnificent Seven stock pick for 2025.

1 Red Flag and 1 Green Flag for Alphabet in 2025 | The Motley Fool

On one hand, its advertising business is steady, the cloud computing and artificial intelligence (AI) businesses are booming, and the stock is priced at a cheap level. On the other hand, the DOJ is seeking to break up Alphabet due to an illegal monopoly by forcing the sale of its Google Chrome browser. So, which factors should investors be more worried about? The Department of Justice (DOJ) has long been on Alphabet's tail, but it has finally caught it. After a judge ruled that Google (an Alphabet subsidiary) has engaged in an illegal monopoly, the DOJ is pushing the judge to force the sale of Google Chrome. The judge hasn't decided what to do yet, but regardless, this decision may take years to enact. Alphabet can still appeal to the Supreme Court, which can take a while to get on the docket. As a result, this dark cloud will be hanging over Alphabet's head for a while, but it's likely already developing remedies for what it would do should it lose access to Google Chrome. Microsoft's antitrust case in the early 2000s is the best example of how long this might take. A judge first ruled Microsoft engaged in an illegal monopoly in April 2000 and ordered a breakup in June 2000. However, an appeals court ruled against that decision in June 2001, and a remedy to the settlement wasn't approved until June 2004. With that timeline in mind, Alphabet still has a long way to go before finding out the final outcome of this lawsuit, so investors shouldn't make rash decisions to get out of the stock right now. As a result, I think this "red flag" is more of a distraction than a signal for 2025. If you only looked at Alphabet's financial results, you'd think the stock would be up more than it is. In Q3, revenue was up 15% year over year, and earnings per share (EPS) rose from $1.55 to $2.12 -- a 37% rise. Those are solid results for Alphabet, and they were powered by the boom in its cloud computing wing. Thanks to its wide arsenal of AI tools, Google Cloud has become a popular option for companies. One of the biggest drivers is that Google Cloud gives clients access to leading GPUs and its in-house TPUs (tensor processing units). The TPU can far outperform the GPU when workloads are properly configured, significantly reducing AI training costs and time. For many companies, using a service like Google Cloud is a more cost-effective way of developing AI models, which has resulted in its popularity. In Q3, Google Cloud's revenue rose 35% year over year, an acceleration from Q2's 29% growth and Q1's 28% growth. As this segment expands and reaches operating scale, it can greatly affect Alphabet's overall financial picture, making it one of its most important business segments. Thanks to the cloud of the DOJ investigation, you can pick up Alphabet shares for a fairly reasonable price right now. At around 24 times forward earnings, it's far cheaper than many of the big tech stocks it's often compared with. An easy comparison for Alphabet would be its fellow "Magnificent Seven" counterparts. These stocks make up the bulk of the big tech space, and are great comparisons for relative valuation. Data source: YCharts. Alphabet is the cheapest of this group by a fair amount, yet is doing just as well (if not better) than some of its counterparts. With that in mind, I think the bull case far outweighs the bear case, and investors should take the opportunity to purchase Alphabet shares. It's poised to have another strong 2025 with the strength of its AI business, although the DOJ investigation still looms overhead.

Alphabet Stock Is Still a Solid Buy, Even After Surging 32% This Year | The Motley Fool

Investors looking for stocks that can outperform the broader market might be hesitant to invest in a company that has a market cap of $2.38 trillion, but Alphabet (GOOG -1.16%) (GOOGL -1.11%) has continued to deliver excellent returns for investors. The stock has nearly tripled in value over the last five years and already climbed 39% year to date at the time of writing. It's a rock-solid company with $94 billion in trailing-12-month net income and $339 billion in revenue, and it's still growing these figures at double-digit rates year over year, which could pave the way for more returns. Here are three reasons why the stock is a great buy for long-term investors. Alphabet has been investing heavily in artificial intelligence (AI) for several years. It powers just about everything across the business, including search, advertising, content recommendations on YouTube, and cloud services. However, its Gemini AI models have trailed other competing models for tasks like coding, solving math problems, and reasoning. Anthropic's Claude, xAI's Grok, and OpenAI's ChatGPT are generally viewed as more advanced than Gemini. This has painted the perception that Alphabet is falling behind in AI. But Alphabet's lack of innovation may be greatly exaggerated. In a new Google blog post, the company unveiled its new quantum computing chip, Willow. Google said Willow was able to perform a standard benchmark computation that would take one of the world's most powerful supercomputers 10 septillion years to complete (one followed by 25 zeros). The stock jumped about 5% on the news, as Willow shows there are exciting things happening at Google headquarters, even if not widely known. This is why it's worth investing in large tech companies with enormous resources to pour into new technologies. These companies generally find ways to surprise to the upside. Google Cloud is another business that probably hasn't gotten the attention it deserves on Wall Street. This is because Google Cloud has also trailed the competition from Amazon, which is currently No. 1 in the cloud market, followed by Microsoft. Google is a distant third, but it's steadily gaining share of this growing $313 billion market, according to Synergy Research. Cloud revenue looked particularly strong in Q3, up 35% year over year. This compares to Amazon Web Services revenue growth of 19% last quarter, and Microsoft Azure's 33% increase. As it keeps growing, Google Cloud will become more of a catalyst for Alphabet stock, since it is also starting to show strong growth in profits. Cloud operating income was 6.8% of Alphabet's total last quarter, up from just 1.2% in Q3 2023. Alphabet stock recently hit a new high of $196. Technology investments, cloud services momentum, and a growing digital advertising market are placing positive sentiment around the shares. There is uncertainty in the near term regarding the company's legal issues after it lost an antitrust case from the Department of Justice earlier this year. This may force Alphabet to divest its Chrome web browser to provide more choice to consumers over what search engine they use. But the stock's valuation seems to already account for these headwinds. The stock's price-to-earnings (P/E) ratio is 26, which is a discount to the S&P 500. With analysts expecting the company to post 16% annualized earnings growth in the coming years, the stock still offers solid value and return prospects. Assuming it continues to grow earnings around those rates, the share price could double in value in the next five years if it's still trading at the same P/E multiple. Considering that the S&P 500 historically returns around 10% annually, Alphabet looks like a superior investment when you take into account the billions of people who use its products every day and the enormous resources the company has to invest in new technologies and deliver above-average growth.