What's Driving Google Stock Higher?

Core Insights - Google's stock (NASDAQ: GOOG) has underperformed the S&P 500 with a 7% year-to-date decline, attributed to regulatory scrutiny and concerns over AI's impact on its search business [2] - Despite this, GOOG stock has doubled since early 2023, driven by key factors that will be explored in detail [3] Revenue Growth - Google's revenue growth has been significantly driven by its cloud business, which saw a 64% increase in sales from 2022 to 2024 [4] - The core search business also performed well, with search ad revenues up 22% and YouTube ad revenue increasing by 24% during the same period [4] AI as a Growth Driver - Artificial intelligence has become a crucial growth driver for Google's services, enhancing user engagement in Search and increasing demand for its AI-powered Cloud portfolio [5] - Waymo, Google's autonomous driving subsidiary, is providing over 250,000 paid rides per week, showcasing diversification and growth [5] Valuation Metrics - Since 2022, Google's operating margin expanded by 600 basis points from 26.5% to 32.7%, driven by the profitability of Google Cloud and AI-enhanced advertising [6] - The Price-to-Sales (P/S) ratio rose by 47%, from 4.1x to 6.1x, while revenues climbed from $283 billion in 2022 to $360 billion currently [7][8] Future Outlook - At a trading price of around $180, GOOG's P/S ratio of 6.1x is closely aligned with its five-year average of 6.2x, indicating potential for further valuation growth [9] - Strategic AI investments are expected to expand Google's business, with increased enterprise demand for AI boosting Cloud sales and enhancing Search and advertising effectiveness [10]