After a 70% Run in 6 Months, Is Alphabet Still a Top AI Stock to Own?

After a bruising sell-off earlier this year, Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) stock has ripped higher -- up just more than 70% over the last six months, as of this writing. The move upward accelerated after the company posted a milestone quarter after the market closed on Oct. 29 and leaned into a simple message: Artificial intelligence isn't eroding Google's core; it's expanding it.

Initially, investors worried about the impact of AI (artificial intelligence) on Alphabet, which is best known for Google Search and YouTube but also operates a fast-growing cloud platform. But sentiment about AI's role in Alphabet's business has been flipping over the last few months. And in its most recent report, it was clear: AI is now a substantial headwind for the company -- across Search, YouTube, and Cloud.

Image source: Getty Images.

Results show AI is an accelerant

Alphabet delivered its first-ever $100 billion quarter, with revenue up 16% year over year to about $102.3 billion, and earnings per share rising 35% year over year $2.87. Revenue in the company's core Google Search and other segment climbed 15% year over year, while YouTube ads revenue grew by the same amount to just over $10 billion.

Additionally, the company's important and fast-growing cloud computing business, Google Cloud, saw revenue rise 34% to $15.2 billion, reflecting heavy AI infrastructure demand and growing adoption of Gemini-powered services.

These are not the numbers of a business getting disrupted. They reflect broad-based momentum. Management tied that momentum directly to AI features.

"AI Overviews drive meaningful query growth," CEO Sundar Pichai said on the company's third-quarter earnings call, noting that the effect strengthened during the quarter.

In parallel, Google Chief Business Officer Philipp Schindler said that, at today's baseline, ads shown around AI Overviews are "monetized at approximately the same rate" as ads on its Google property that are not shown around AI Overviews, establishing a solid starting point as the company iterates.

Further, the company said AI Mode (an approach to online search that leans heavily on generative AI) usage is growing week over week in the U.S. Additionally, YouTube continues to benefit from recommendation quality improvements with the help of AI.

In short, AI features appear to be lifting engagement and enhancing overall monetization.

Where AI is helping the most

The other key story worth closer attention is the company's Google Cloud business. Alphabet management called out AI as a primary demand driver in its cloud computing operation, where growth accelerated during the quarter. Google Cloud revenue rose 34% year over year, up from 32% growth last quarter. It's no secret that large language model training and inference require compute intensity, and Google is leaning into that need with both Nvidia GPUs (graphics processing units) and its in-house TPUs (tensor processing units).

Despite ramping up capacity, the company's backlog in cloud has swelled. Management said it's signing up new customers faster, signing up larger deals, and deepening its relationships with existing cloud customers.

The downside, of course, is that AI infrastructure is capital-intensive, and Alphabet guided for 2025 capital expenditures of $91 billion to $93 billion as it scales data centers and networking. Further, regulatory scrutiny remains a risk for any technology platform of this size.

Even so, the valuation looks defensible given the fundamentals. As of this writing, shares trade around 28 times earnings, despite record revenue, accelerating cloud growth, and AI as a clear tailwind for its business. Sure, that multiple is no longer "cheap," but it is fair for a company posting double-digit top-line growth and translating AI into measurable engagement and revenue.

Ultimately, the latest results have just about eliminated the bear case that AI would blunt search. Instead, early data suggests AI is creating new opportunities while preserving monetization and even accelerating some parts of its business.

With accelerating growth, improving profitability, and an attractive valuation for a company of this caliber, Alphabet arguably remains a top AI stock to own -- even after its massive run-up.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.