Google’s parent company, Alphabet (NASDAQ:GOOG), has seen its stock experience a significant run since early 2023, effectively doubling in value. This surge comes despite a more challenging start to 2025, where GOOG shares saw a year-to-date decline of around 7%, underperforming the broader S&P 500 index. This recent dip has been attributed partly to increased regulatory pressures and lingering investor questions about how Artificial Intelligence (AI) might disrupt Google’s core search business.
However, the longer-term trajectory points firmly upwards, driven by a confluence of powerful factors. Unpacking the performance since early 2023 reveals three primary engines behind the stock’s ascent:
A notable expansion in the Price-to-Sales (P/S) valuation multiple.
Robust growth in the company’s top-line revenues.
A reduction in the total number of shares outstanding.
Let’s delve deeper into what’s fueling these key areas for Alphabet.
Strong Financial Performance and Shareholder Returns
Beyond just revenue figures, Alphabet has demonstrated impressive financial health, which directly impacts investor confidence and the stock price. The company recently reported strong first-quarter 2025 results, beating analyst expectations on both revenue ($90.2 billion vs $89.1 billion expected) and earnings per share ($2.81 vs $2.01 expected).
Crucially, Alphabet signaled its commitment to shareholder returns alongside this performance. The company announced a 5% increase in its dividend and authorized a massive $70 billion in stock buybacks. This adds to the nearly $200 billion in share repurchases since 2022, a strategy that has reduced the total shares outstanding by 7%. By reducing the share count, earnings per share are boosted, which can make the stock more attractive to investors and contribute to its price appreciation.
Overall, revenues have climbed significantly, increasing by 27% from $283 billion in 2022 to $360 billion currently.
Accelerating Revenue Growth: Cloud and Advertising Power
Google’s ability to consistently grow its revenue base is a fundamental driver of stock performance. While historically dominated by advertising, newer segments are contributing substantially.
The Google Cloud business has been a major catalyst for recent revenue acceleration. Showing strong momentum and increasing maturity, cloud sales surged by an impressive 64% between 2022 and 2024. This segment is also becoming increasingly profitable, contributing to the company’s overall margin improvement.
The core Search business remains a powerhouse, with advertising revenues up 22% over the same period. YouTube advertising has also performed exceptionally well, seeing a 24% increase in revenue. This continued strength in the core advertising engines, combined with the rapid growth in Cloud, highlights Google’s success in diversifying while maintaining dominance in its traditional markets. Examples like Waymo, Google’s autonomous driving venture now providing over 250,000 paid rides weekly across multiple cities, further illustrate this drive for diversification and growth outside core advertising.
Artificial Intelligence is playing a crucial role across these segments. AI-powered features like AI Overviews and Circle to Search are enhancing user engagement in Search, while Google’s AI-powered Cloud portfolio is experiencing increased customer demand.
However, while Google’s growth trajectory is strong, comparisons to peers like Meta highlight the competitive landscape. Meta, for instance, has shown even faster revenue growth (over 20% in the last twelve months compared to Google’s ~14%) and maintains higher operating profit margins (exceeding 42% versus Google’s ~32%). This underscores that while Google is executing well, the bar for growth and efficiency in Big Tech remains high.
Valuation Expansion Fueled by Profitability and AI Potential
Beyond just revenue growth, the market is willing to pay a higher premium for Google’s sales than before. The company’s price-to-sales (P/S) ratio has risen by 47% since 2022, climbing from 4.1x to the current 6.1x trailing revenues.
This valuation expansion is closely tied to improved profitability. Google’s operating margin has expanded significantly since 2022, rising by 600 basis points from 26.5% to 32.7%. This margin improvement is a direct result of:
The increasing profitability and scale of Google Cloud.
The continued strength and AI-enhanced monetization of the core advertising business.
Concerted efforts to manage costs and enhance operational efficiency.
This combination of better margins, robust sales growth, and surging demand for cloud infrastructure driven by the AI boom has positively shifted investor perception and supported the higher valuation multiple.
Currently, GOOG stock trades around $180, placing its P/S ratio of 6.1x closely in line with its five-year average of 6.2x. However, there are arguments to be made that this multiple could expand further, largely predicated on the impact of Google’s strategic AI investments. AI is expected to benefit Google Cloud through increased enterprise demand for AI capabilities and enhance Search/advertising via improved relevance and targeting, potentially boosting user engagement, ad click-through rates, and advertiser ROI.
The AI Engine: Driving Infrastructure Demand and Performance
Artificial intelligence isn’t just enhancing existing products; it’s fundamentally driving demand for the underlying infrastructure Google provides and utilizes. The industry is witnessing massive growth in AI inference – the process of running AI models to generate responses – driven by hyperscalers like Alphabet and other AI providers. For instance, Alphabet reported a 9x year-over-year growth in tokens processed (a measure of AI workload) in April 2025.
This surging inference demand requires significant investment in computing power, networking, and custom silicon. Google Cloud customers are reportedly consuming eight times more compute capacity for AI training and inference than just 18 months prior.
A key part of this strategy involves Google’s own custom-designed AI chips, known as TPUs (Tensor Processing Units). These custom accelerators are often more cost-effective and performant for specific inference tasks compared to general-purpose GPUs. Google’s upcoming seventh-generation TPU, codenamed “Ironwood,” is designed to be its most performant custom AI accelerator for inference, offering significant improvements in performance-per-watt. Developing its own silicon allows Google to optimize workloads, manage costs, and potentially reduce reliance on merchant chip providers.
Google’s massive capital expenditures (CapEx), totaling an astonishing $134 billion since 2022 with $75 billion planned for 2025, are largely directed towards building out this essential AI infrastructure to support its own services and its booming Cloud business.
Navigating the Headwinds: Volatility and Regulatory Challenges
Despite the strong tailwinds, Google stock is not without its risks, which can temper its ascent or introduce volatility.
Market Volatility: GOOG stock has historically shown higher sensitivity to market downturns compared to the S&P 500. During the 2022 inflation-driven decline, it dropped significantly more than the benchmark index, and a similar pattern emerged amidst trade war anxieties earlier in 2025.
Capital Expenditure Risk: The immense scale of Google’s CapEx ($134 billion since 2022) presents a risk. A critical question remains: will these massive investments in AI infrastructure and other areas yield the anticipated returns and growth?
Regulatory Scrutiny: Significant regulatory pressure is a persistent threat. The Department of Justice is actively pursuing a case related to alleged monopolistic practices in the search market, with a potential push for Google to be split being a major concern.
Advertising Market Sensitivity: As a company heavily reliant on digital advertising (a vulnerability shared with peers like Meta), Google is susceptible to economic headwinds. Factors like increased tariffs or slowing economic growth can cause businesses to reduce advertising spend, directly impacting Google’s revenue growth.
- Existential AI Threat (Long-Term): While AI is a driver, some experts raise a more fundamental long-term risk. The rise of generative AI platforms like ChatGPT or Perplexity could potentially disrupt the traditional search query model. The concern is whether Google’s AI integration, like Gemini, can maintain the same user adoption and monetization effectiveness as dedicated AI platforms, or if a shift in user behavior could challenge the dominance of its core business.
- www.forbes.com
- www.trefis.com
- io-fund.com
- finance.yahoo.com
- www.theglobeandmail.com
Conclusion
Google stock’s recent performance is driven by a combination of solid financial execution, particularly strong growth in Cloud and resilient advertising revenues, supported by massive share buybacks. The company’s strategic, heavy investments in AI infrastructure and technology are positioning it to capitalize on the surging demand for AI capabilities, both internally and through its Cloud platform, which is a significant factor in its valuation expansion and future potential.
However, investors must weigh these positives against notable risks, including historical market volatility, the substantial capital expenditure needed to compete in the AI arms race (and the uncertainty of returns), and ongoing regulatory challenges. While some concerns exist about AI’s potential to disrupt the core search model, Google is actively integrating AI to enhance its offerings and betting big on its proprietary infrastructure to maintain its competitive edge.
At its current valuation, GOOG stock is trading close to its historical average, reflecting a balance between its proven growth engines and the significant investments and risks ahead. The path forward for Alphabet stock will likely depend on its ability to successfully navigate the complex AI landscape, effectively monetize its new capabilities, and manage regulatory scrutiny while maintaining efficient operations.
