Where Will Alphabet Stock Be in 1 Year?

Shares of Alphabet (GOOGL) (GOOG) have seen significant growth, rising 34% in the past year. Currently, the stock hovers just below its all-time high.

Even with increased regulatory scrutiny and concerns over the relevancy of its search business in the rapidly evolving artificial intelligence (AI) landscape, Alphabet continues to achieve impressive growth and profitability.

Looking ahead, will the upward trend in Alphabet stock persist over the next year? Let’s analyze where the stock could be by this time next year.

Strong Earnings Driven by AI

Alphabet stands out in the tech industry due to its wide array of products and services. Its main search platform, along with the Chrome browser and Android operating system, offers users a seamless experience. The company’s cloud services have gained importance and are becoming a substantial player in the enterprise sector, while YouTube has solidified its position in social media.

Alphabet's commitment to innovation is evident in its ownership of Waymo, an autonomous driving project. This diverse range of services allows the company to leverage synergies that bolster its advertising revenues. Recently, Alphabet has heavily invested in AI, which has significantly contributed to its growth strategy. This investment has led to improved operating performance and increased financial metrics.

One of the most notable benefits has been seen in Google Cloud, where demand for AI and machine learning tools has surged as clients seek to incorporate AI into their processes.

As a result, Alphabet is not only diversifying its revenue streams beyond advertising but also achieving higher operating margins as it embraces a high-tech profile. In the recently reported third quarter of 2024, Alphabet reported a 15% increase in revenue from the previous year, contributing to a 37% rise in earnings per share (EPS).

CEO Sundar Pichai described the ongoing trends as "extraordinary" and expressed optimism about the company’s future. Wall Street analysts project continued revenue growth of 11.6% in 2025, with an EPS target of $8.99, marking a healthy year-over-year increase of 12.5%.

Metric	2024 Estimate	2025 Estimate
Revenue (in billions)	$350.2	$390.7
Revenue growth (YOY)	13.9%	11.6%
Earnings per share (EPS)	$7.99	$8.99
EPS growth (YOY)	37.8%	12.5%

Source: Yahoo Finance. YOY = year over year.

Valuation Perspective

Alphabet appears to be well-positioned, effectively navigating the dynamic tech landscape focused on AI. However, the company’s success, particularly in search and advertising, has attracted scrutiny from regulators. Numerous investigations are currently taking place over potential anti-competitive practices.

For instance, in the U.S., the Department of Justice has proposed divesting the Chrome browser, citing Google's monopoly in the search market. Concurrently, the European Union is evaluating Google AI for compliance with data privacy laws. No definitive actions have arisen yet, leaving an aura of uncertainty surrounding these developments.

This scrutiny may contribute to Alphabet trading at a forward price-to-earnings (P/E) ratio of 21 times its predicted 2025 EPS. This valuation is below other major tech firms, such as Meta Platforms, which holds a P/E of 23, and Microsoft, with a ratio closer to 32.

Despite this, there are strong arguments suggesting Alphabet may be undervalued. Even in case the company faces the need to sell off part of its services, it is anticipated that shareholders could maintain the intrinsic value associated with its independent assets.

In a less drastic scenario—where merely some exclusive contracts are removed or new regulations are implemented—this could signal a positive reception from the market. Overall, Alphabet's diversification indicates that its long-term potential remains strong.

Outlook for Alphabet Stock

Considering Alphabet's robust fundamentals, leadership in AI, and appealing valuation compared to its peers, it seems that the positives outweigh the inherent risks of stock market investment. Provided that the economic environment remains stable, the company appears poised for continued profitable growth and returns for shareholders. Therefore, I foresee Alphabet trading at a higher price a year from now.

Alphabet, Stock, AI