Is Alphabet Stock Still a Buy?

Core Insights - Google Cloud's backlog is surging due to increased demand for enterprise-level AI, indicating a strong market response to Alphabet's AI capabilities [1][5][12] - Alphabet has transformed from an AI laggard to a formidable player in the technology industry, raising questions about the sustainability of its stock price after significant gains [2][12] Financial Performance - Alphabet's Q3 sales increased by 16% to $102 billion, with adjusted operating margins expanding to 34%, demonstrating that AI investments are not eroding profitability [3][10] - Google Cloud segment grew by 34% in the quarter, now accounting for 15% of total revenue, with a backlog increase of 79%, indicating a strong future revenue stream [5][12] Strategic Partnerships - The partnership with Anthropic, announced in October, is expected to generate $8 billion to $10 billion in annual revenue, enhancing Alphabet's cloud capabilities and validating its AI chips [6][12] Market Position - Google Search continues to grow, with a 12% increase in the second quarter and maintaining over 80% market share, countering fears of disruption from generative AI competitors [7][8] - AI features integrated into search results are driving query growth without cannibalizing existing traffic, enhancing user engagement and ad inventory [8][12] Competitive Advantages - Alphabet's vertically integrated approach provides cost advantages over competitors relying on third-party hardware, with efficient energy consumption in AI applications [9][12] - The company trades at a premium to the broader market but at a discount to many tech peers, reflecting reasonable growth expectations [10] Financial Health - Alphabet has a strong balance sheet with $98 billion in cash and $22 billion in debt, providing financial flexibility and allowing for share buybacks and dividends [11][12] Investment Outlook - The market is recognizing Alphabet's underestimated AI capabilities, resilient advertising cash flows, and growth potential in cloud and emerging businesses like Waymo [12][13]