Alphabet’s Q3 Earnings Signal A Future $4 Trillion Valuation As AI Gamble Pays Off
The Magnificent Seven stock’s powerful Q3 earnings show that the AI boom is still going as strong as ever.
Google’s parent company, Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) announced a 16% hike in third-quarter revenues, with growth throughout its digital advertising and cloud computing units set to finance the company’s emphasis on developing its artificial intelligence infrastructure.
Sales soared to a record $102.3 billion for the quarter, beating analyst expectations and fueling investor optimism for the stock’s long-term prospects. Net income grew 33% over the same period last year to hit around $35 billion.
At a time when speculation is mounting over the sustainability of the ongoing AI-driven market rally on Wall Street, Alphabet’s impressive figures serve as an indicator of the sheer transformative potential of the technology.
Most notably, Google’s cloud division, which sells computing power to data centers, has grown exponentially alongside the tech giant’s bid to develop artificial intelligence, with the company’s cloud unit hitting $15.2 billion in quarterly revenue at a 34% increase from Q3 2024.
Perhaps the most critical detail of Alphabet’s third-quarter earnings report was the firm’s bold expectations for substantial capital expenditures over the year ahead, with much of its revenue streams being used to build data centers to build and run AI models.
Estimates for Google’s capital expenditures for this year were lifted from $52.5 billion in 2024 to a range of $91 billion to $93 billion.
The stock’s shares leapt 6% in after-hours trading as a result of such a solid statement of intent from the tech leader.
AI Drives Optimism
While much of the early artificial intelligence furore among investors focused on the firms equipped to build the hardware to power the technology, like Nvidia (NASDAQ:NVDA), Alphabet has been level pegging with the world’s most valuable stock since the beginning of 2025.
The recent Q3 results show that the tech giant is very much an AI stock, and its Gemini large language model (LLM) has increased in popularity among institutional adopters this year, while some big-name developers have signed up to use Google’s cloud services.
July saw OpenAI add Google to its list of cloud infrastructure providers; meanwhile, Meta (NASDAQ:META) has reportedly agreed to a $10 billion deal with Google Cloud to use its services in a bid to secure the firm’s own AI computing capacity.
Google’s AI prowess has even been growing in the weeks following the end of the third quarter, with Anthropic announcing an agreement with Google Cloud to use up to 1 million of its custom AI chips called TPUs in a deal that could drive up to $10 billion in annual revenue for Alphabet, according to estimations from the Bank of America.
September saw Alphabet become the world’s fourth company to surpass a market capitalization of $3 trillion. However, the firm’s strong AI pipeline means that many investors will be eyeing a continuation of the stock’s rally towards the $4 trillion mark.
Off the back of the company’s quarterly earnings, Oppenheimer analysts raised their price target for Alphabet to $345, citing the firm’s strong AI momentum. But is there a risk that Google may be swept up into an artificial intelligence bubble?
Is Tech Dependent on AI Success?
The artificial intelligence boom has driven double-digit growth for the S&P 500 for two consecutive years, and 2025 is gearing up to be another year where stocks have been driven higher by investor enthusiasm for AI stocks.
However, patches of weaker economic data in the United States, coupled with lingering trade tensions with China and the ongoing threat of new tariffs disrupting supply chains and the affordability of materials, all pose a threat to tech stocks that may not be fully factored into the prices we’re seeing among industry leaders.
The AI boom can only continue to rumble on by gaining the oxygen of institutional adopters, but there are some signs of friction as hype gives way to the widespread implementation of the technology.
According to a recent IBM study, CEOs have suggested that only 25% of AI initiatives have managed to return the expected ROI in recent years, while just 16% of adopters have scaled the technology enterprise-wide.
According to MIT insights, 95% of generative AI pilot projects have thus far failed to produce any discernible financial savings or significant profits, despite an estimated $30 to $40 billion in corporate spending on the technology.
Is Google Going to Reach $4 Trillion?
At a price-to-earnings (P/E) ratio of around 28, it’s clear that investors have high expectations for Alphabet’s future AI growth. However, for the stock to reach its potential, it’s wholly dependent on a frictionless transition from the ‘tell me’ phase of AI innovation to the ‘show me’ phase.
As Google doubles down on building a comprehensive artificial intelligence infrastructure, its recent earnings report suggests that its gamble is paying off. The road towards $4 trillion has become shorter in recent days, but it will ultimately be down to institutional AI adoption to decide the stock’s long-term growth trajectory.
Disclosure: On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
