Why Alphabet Looks Like the Best AI Stock to Buy Now
Alphabet offers scaled AI exposure at ~25x forward earnings, with Gemini lifting Search and Cloud momentum. Strong cash flow funds AI buildout, supporting market-beating potential.
Alphabet: One Of The Best AI Stocks To Buy Now
Alphabet offers scaled AI exposure without paying a speculative premium. Despite a strong run from its 52-week low, the stock still trades at a reasonable ~25x forward earnings. With Gemini driving user engagement across Search and real traction in Cloud, the setup supports market-beating potential.
- Gemini has emerged as a top consumer AI model in 2025, embedded across Google's products.
- AI Overviews are increasing engagement in Search, Alphabet's largest business.
- Google Cloud is onboarding new customers at a fast clip on AI infrastructure strength.
- Strong free cash flow funds heavy AI capex without stretching the balance sheet.
Why Gemini Matters For Search Economics
Concerns about users shifting to standalone chatbots missed the leverage of Gemini inside Google's ecosystem. Gemini powers AI Overviews in Search and other products with billions of users, which is showing up in the numbers. Search revenue grew 12% year over year in Q2, reflecting higher query activity with AI features.
The key question for finance teams is monetization. Early evidence suggests AI Overviews can expand engagement while keeping ad yield intact. Track cost-per-click, traffic acquisition costs, and ad load to validate durability.
How AI Overviews work in Search
Cloud: AI Infrastructure Pulling Demand Forward
Enterprises are choosing Google Cloud for AI workloads. New customers rose 28% quarter over quarter in Q2, helped by a global footprint of AI-optimized data centers, custom AI chips, storage, and software. That combination supports utilization gains and operating leverage as deployments scale.
Google Cloud AI infrastructure
Cash Generation Funds The Buildout
Alphabet generated $67 billion in free cash flow over the last year and invested $67 billion in capex to expand technology and AI infrastructure. Self-funding reduces financing risk and supports faster iteration across products. Expect elevated capex near-term as capacity is built, with unit efficiency improving over time.
Valuation Supports Upside
The stock trades at a forward P/E of about 25 while earnings grew 22% year over year last quarter. With durable growth in Search, improving Cloud mix, and ongoing product integration from Gemini, the risk-reward looks favorable. You're paying a market multiple for above-market compounding.
Key Risks To Underwrite
- Search monetization: AI Overviews could cannibalize some ad clicks if execution slips.
- Competition: Strong models and distribution from Microsoft, OpenAI, and Meta.
- Regulation: Antitrust and policy actions may affect business practices and margins.
- Capex intensity: Heavy AI investments can pressure free cash flow in the near term.
Metrics To Watch
- Search revenue growth versus changes in ad pricing and TAC.
- Google Cloud revenue growth, backlog, and margin trajectory.
- Capex and free cash flow trend as AI infrastructure scales.
- Gemini adoption across Search, Workspace, Android, and third-party developers.
Bottom Line
If you want scaled, monetized AI exposure with real users and strong unit economics, Alphabet is a clean choice. Gemini is lifting engagement, Cloud is winning AI workloads, and the multiple leaves room for earnings compounding to do the heavy lifting.
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