Alphabet’s Future: Will AI Investments Drive Stock Growth?

MOUNTAIN VIEW, Calif. — Alphabet Inc. (NASDAQ: GOOG), the parent company of Google, is facing a crossroads as investors grapple with its positioning in the rapidly evolving artificial intelligence (AI) landscape. Despite its market capitalization of $2.1 trillion and a marginal decline of 0.88% in stock price to $173.66 as of March 7, 2025, Alphabet’s role in AI continues to be scrutinized.

Investors have expressed concerns that Alphabet may be falling behind its competitors, particularly chipmakers like Nvidia and firms linked to OpenAI‘s ChatGPT. However, analysts believe that Alphabet is still poised for significant growth, driven largely by its aggressive investment in AI and technology sectors.

Alphabet’s stock is currently being regarded as the cheapest in the tech sector, with a price-to-earnings (P/E) ratio of 21. Over the next five years, the company’s investments in AI could potentially lead to its stock price doubling, according to industry analysts.

“Although concerns about Alphabet lagging in AI arise, it’s important to remember that the company has been harnessing this technology since 2001, starting with digital advertising,” said Chris Evans, a financial analyst with Market Insights. “The profits generated have allowed Alphabet to finance diverse ventures, including YouTube and Google Cloud.”

In addition to its well-known ventures, Alphabet owns Waymo, an autonomous driving company, and Fitbit, a fitness tracker brand. While these businesses might not be prominently featured in Alphabet’s financial breakdown, they contribute to the company’s resilience as the advertising revenue model faces potential decline.

To affirm its commitment to innovation, Alphabet announced plans to invest $75 billion in 2025, a significant increase from the previous year’s $53 billion. This increased spending indicates Alphabet’s confidence in sustaining its technological advancements amid economic fluctuations. Despite a 14% revenue growth in 2024, advertising, which accounted for 76% of total revenue, remains a stronghold for the company.

Google Cloud, which constitutes only 12% of Alphabet’s revenue, showcased impressive growth of 31% year-over-year, further emphasizing the importance of AI and cloud infrastructure in Alphabet’s business model. Analysts predict that continued investment in these areas could yield substantial returns in the long run.

Financial stability underpins Alphabet’s ambitions, as the company reported $95 billion in liquidity by the end of 2024 and generated over $69 billion in net income. With caveats regarding a potential decrease in free cash flow due to hefty capital expenditures and dividends, the prospects for Alphabet look promising.

“The investment strategy that Alphabet has adopted would likely translate into a positive growth trajectory for its stock, making a 100% gain in five years feasible,” Evans added.

Investors must consider that the competitive landscape is constantly evolving, particularly with challenges from products like ChatGPT. However, Alphabet remains resilient, leveraging its core strengths in advertising and diversification into other high-growth sectors. The current low P/E ratio, combined with robust investment in future technologies, places Alphabet in a robust position for growth well beyond the next five years.

Suzanne Frey, an executive at Alphabet, also serves on The Motley Fool‘s board of directors and has stated that the company continues to enjoy strong investor confidence despite market volatility. The Motley Fool has positions in and recommends both Alphabet and Nvidia.