Buy the Spike in Alphabet Stock After Its First $100 Billion Quarter?

With Mag 7 results starting to roll in, Alphabet GOOGL is grabbing headlines after posting record Q3 results on Wednesday evening in an earnings lineup that also included Microsoft MSFT.

Drawing attention to Alphabet is that the tech giant posted its first $100 billion quarter, driven by AI innovation that prompted robust advertising growth in its Search and YouTube businesses, as well as continued expansion in cloud services.

Spiking as much as +6% in Thursday's trading session, Alphabet stock has started to challenge Nvidia NVDA for the most year-to-date gains from the Mag 7, with GOOGL now up about +50% in 2025.

AI Fuels Alphabet’s Strong Q3 Results

Alphabet’s custom AI chip, the Tensor Processing Unit (TPU), played a pivotal role in its strong Q3 results by powering its AI infrastructure, enabling product innovation, and attracting major enterprise deals.

TPUs are the backbone of Alphabet’s AI infrastructure, used to train and run models for Search, YouTube, and Google Cloud. Seeing double-digit revenue growth in all of these business segments, Alphabet’s consolidated revenue spiked 16% year over year to a quarterly peak of $102.3 billion.

Notably, Google Cloud’s 34% growth rate during Q3 slightly edged Microsoft’s Azure as the AI-driven momentum is helping Alphabet close the gap as the third-largest cloud provider, with Amazon’s AMZN AWS holding the top spot.

Excluding total traffic acquisition costs (TAC) to Google’s partners, Alphabet’s Q3 sales rose 17% to $84.47 billion, topping estimates of $84.96 billion by 3%. Alphabet’s increased profitability was also on display, with Q3 EPS soaring 35% YoY to $2.87 and crushing expectations of $2.26 by 27%.

Alphabet’s Bullish AI Outlook

While Alphabet didn’t provide specific revenue targets for Q4, its tone and investment posture alluded to expectations of sustained double-digit growth.

CEO Sundar Pichai highlighted that Alphabet is seeing real business value from AI, and expects this momentum to continue into Q4 and beyond. Signaling aggressive expansion in its AI endeavors, Alphabet raised its capital expenditure forecast for the full year to over $90 billion while emphasizing that these investments are aimed at supporting long-term growth.

The cherry on top is that Alphabet recently signed a record-breaking multi-billion-dollar deal with AI safety and research company Anthropic to supply up to 1million TPUs.

Monitoring Alphabet’s Valuation

Among its Mag 7 peers, Alphabet’s 27X forward earnings multiple is the second cheapest P/E valuation behind Meta Platforms META, with the others above 30X, led by Tesla at a noticeable premium of 282X.

In terms of price to forward sales, GOOGL also has the second most reasonable P/S ratio of 8X behind Amazon’s 3X.

Average Zacks Price Target & Analyst Upgrades

Blowing past the current Average Zacks Price Target of $266.60 a share, a number of notable firms have raised their price tags for GOOGL following Alphabet’s Q3 results.

This includes analysts at Goldman Sachs GS, JPMorgan JPM, Wells Fargo WFC, and Barclays BCS, among others, with some price targets reaching as high as $350.

Conclusion & Final Thoughts

As a reminder that Alphabet stock previously traded over $2,000 a share before its 20-1 stock split in 2022, GOOGL currently lands a Zacks Rank #3 (Hold). That said, a buy rating could be on the way with earnings estimate revisions likely to trend higher following Alphabet's strong Q3 report and bullish tone.

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This article originally published on Zacks Investment Research (zacks.com).

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