Alphabet Stock Has Soared This Year. Is It Still a Buy?

Core Insights - Alphabet has shown impressive momentum driven by AI, with its stock climbing approximately 66% year-to-date as enthusiasm grows around its Gemini AI models and custom data center chips [1][2][9] - The company reported its first quarter with over $100 billion in revenue, reflecting double-digit growth across search advertising, YouTube, subscriptions, and Google Cloud [2][5] - There is a question regarding whether the current stock price fully reflects the positive developments or if it remains undervalued [3][10] Financial Performance - In the third quarter, Alphabet's revenue increased by 16% year-over-year to $102.3 billion, with Google Services revenue rising 14% to $87.1 billion [5][6] - Google Cloud revenue grew 34% year-over-year to $15.2 billion, with an operating margin improvement to 23.7% from 17.1% a year earlier [5][6] - The company has a cloud backlog of approximately $155 billion, indicating substantial contracted revenue for future periods [5] AI Strategy - AI is central to Alphabet's business strategy, with CEO Sundar Pichai emphasizing the company's "full stack approach to AI" and rapid deployment of AI features [7][8] - The company plans to invest heavily in AI infrastructure, with capital expenditures projected between $91 billion and $93 billion for 2025 [8] Valuation Considerations - Alphabet's stock has seen a significant rerating, with a price-to-earnings ratio of 31, suggesting it may no longer be a bargain [9][10] - While fundamentals have improved, the current stock price appears to reflect these advancements, leading to a cautious outlook on whether it is overvalued [10][11] - The recommendation is for investors seeking AI exposure to consider small positions and wait for better entry points [12]