Is Alphabet Still a Buy After Its Massive 2025 Run?

Core Viewpoint - Alphabet has emerged as the top performer among the Magnificent 7 in 2025, achieving a 66% return, despite earlier concerns about its position in the AI race [1] Group 1: Performance Drivers - Alphabet's share price began to rise in the second half of 2025, driven by improved financial results and optimism regarding its AI initiatives [2] - Recovery in digital advertising spending, the largest segment for Alphabet, contributed to growth, with Google Search revenue increasing by 10% year-on-year in 1Q2025 [2] - By 3Q2025, Google Search revenue growth accelerated to a 14% year-on-year increase, while the operating margin slightly declined from 32.3% in 3Q2024 to 30.5% in 3Q2025 [3] Group 2: AI Initiatives - The success of the Gemini Chatbot, which outperformed competitors in benchmarks, has fueled optimism about Alphabet's AI capabilities [4] - Alphabet is integrating AI across its major products, enhancing user experiences and advertising capabilities [5] - Google Cloud is leveraging AI to provide advanced computing solutions, contributing positively to Alphabet's financial performance [6] Group 3: Valuation Insights - Alphabet's shares have seen a significant increase in valuation, with a P/E ratio rising from around 20x in July 2025 to approximately 33x [8] - Despite the increase, Alphabet's P/E ratio remains competitive within the Magnificent 7, trading slightly below the median P/E ratio of 33.7 [9] Group 4: Future Growth Catalysts - Continued monetization of AI through existing products is essential for further share price increases, with a focus on Google Search, YouTube Ads, and Google Cloud [10] - The partnership with Apple to integrate Gemini into products like Apple Intelligence and Siri is a strategic move to maintain investor interest [10] - Progress in Alphabet's "Other Bets," particularly Waymo, is expected to contribute to operating income in the future [11]