Alphabet: The Next Trillion-Dollar Stock in 2025?

Alphabet Inc. (GOOGL, GOOG) is the parent company of Google, YouTube, and Waymo, and it's quickly becoming a leader in the artificial intelligence (AI) race. With a market capitalization of $2.1 trillion, Alphabet is the world's fourth-largest company, and it has the potential to join the exclusive $3 trillion club in 2025. Here's why Alphabet could be the next trillion-dollar stock.



AI is transforming Alphabet's core business, Google Search. The company has introduced AI Overviews, which provide rapid answers to users' queries, appearing above the usual search results. This feature saves users time and could drive more engagement with Google Search, potentially increasing ad revenue and market share in the search industry. Alphabet is also embedding AI technology across many of its legacy businesses, including Google Cloud and Google Workspace, to enhance user experiences and drive growth.



Alphabet's Google Cloud business is growing rapidly, thanks in part to AI. In the third quarter of 2024, Google Cloud's revenue grew by 34.9% year over year, marking the fourth consecutive quarter of accelerating growth. AI is a significant driver of this growth, as businesses seek to access AI tools and infrastructure through cloud services. Google Cloud operates several data centers packed with Nvidia's GPUs and its own Trillium tensor processing units (TPUs), offering a mix of hardware that helps differentiate its data center infrastructure from competitors. This mix of hardware, combined with over 130 ready-made large language models (LLMs) on Google Cloud, attracts developers and businesses looking to build and deploy AI applications.



Alphabet's stock is significantly cheaper than most of its big-tech peers by one traditional valuation metric. Based on its current stock price of $179.52 and trailing-12-month earnings per share of $7.54, Alphabet's stock trades at a price-to-earnings (P/E) ratio of just 23.7. If Alphabet's P/E ratio rises to 43.3, it would translate to a 68% increase in its stock price from where it currently trades, making it a $4 trillion company without any additional earnings growth. Even if Alphabet's P/E ratio rises to 35 (equivalent to Microsoft's current P/E ratio), its market cap would jump to $3.2 trillion.



Alphabet has a mathematical path to the $3 trillion club in 2025, driven by multiple expansion and earnings growth. Wall Street's consensus forecast suggests Alphabet will generate $8.99 in EPS this year, which places its stock at a forward P/E ratio of 21.6. To maintain its current P/E ratio of 25.7, the stock would need to climb by 19% before the end of the year, lifting its market cap to $2.85 trillion. This suggests that Alphabet needs some multiple expansion to reach the $3 trillion mark, but its strong AI strategy and growth prospects could make it an attractive investment for 2025.



In conclusion, Alphabet's AI strategy, strong growth in Google Cloud, and attractive valuation make it a compelling investment for 2025. As AI continues to transform industries and drive demand for cloud services, Alphabet is well-positioned to join the exclusive $3 trillion club. However, investors should be aware of the risks and challenges facing the company, such as competition in AI, regulatory scrutiny, and dependence on Google Search. By staying focused on its AI strategy and executing on its growth opportunities, Alphabet could become the next trillion-dollar stock in 2025.