Alphabet (NASDAQ:GOOGL) stock has surged 26% over the past month as investors view the tech giant as one of the clearest AI winners. The rally accelerated after the company delivered a strong quarterly report that helped ease concerns around Search competition while showing that Google Cloud is turning into a genuine AI growth engine.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
The biggest surprise came from Google Cloud, which significantly exceeded expectations with revenue jumping 63% year-over-year to $20 billion. Just as importantly, the cloud backlog nearly doubled quarter-over-quarter to more than $460 billion, while operating margins expanded sharply as enterprise demand for AI infrastructure and Gemini-powered services continued accelerating. Management said enterprise AI solutions have become the primary growth driver for the cloud business, supported by Alphabet’s “full-stack” AI strategy spanning chips, models, infrastructure, and applications.
At the same time, Alphabet’s core Search business continued to silence fears that AI chatbots would damage Google’s dominance. Search & Other revenue climbed 19%, marking a fourth consecutive quarter of accelerating growth as AI Overviews, Gemini integrations, multimodal capabilities, and improving consumer query activity helped drive usage to record levels. Management highlighted that AI is enhancing engagement rather than replacing traditional search behavior, an important shift in investor perception over the past several months.
Moreover, Alphabet managed to combine aggressive AI investment with strong profitability. Operating income surged across the business, Google Cloud margins improved dramatically, and overall EBIT performance came in well ahead of expectations despite massive infrastructure spending. Capital allocation also appeared disciplined, balancing reinvestment into AI and data centers with shareholder returns through a higher dividend. While buybacks were absent this quarter, many investors interpreted that as a sign Alphabet sees enormous opportunities ahead and is prioritizing AI expansion while demand remains exceptionally strong.
In many ways, Goldman Sachs analyst Eric Sheridan thinks the readout “continued a trend of climbing a wall of worry” around possible negative effects of AI on both consumer and enterprise compute. Compared with a year ago, the narrative has “entirely flipped,” with AI now increasingly viewed as reshaping the company’s operating segments in a way that supports “sustained operating trends” over the next 12+ months as it is deployed at scale.
While questions are likely to remain around certain elements of the “long-tailed nature” in legacy search advertising within a more agentic, consumer-compute environment, Sheridan thinks Alphabet is positioned to “sustain successful operating momentum across a host of use cases.”
“We continue to advocate that the combination of AI distribution at scale (collection of 1bn+ user applications) and scale of compute to both invest and drive efficiencies remain[s] as a dual under-appreciated narrative in terms of AI over the long-term, particularly as we move from the ‘infrastructure’ to ‘platform’ and ‘application’ layers of AI monetization,” Sheridan summed up.
To this end, how high does Sheridan think Alphabet stock can rise from here? The analyst assigns a Buy rating on the shares, while raising his price target from $400 to $450, suggesting the stock could climb another 12% over the coming months. (To watch Sheridan’s track record, click here)
Most other analysts are on the same page. Based on 28 Buys versus 5 Holds, the stock carries a Strong Buy consensus rating. That said, after the stock’s strong rally, the Street appears to see more modest upside from here, with the average price target of $426.44 implying gains of ~6% over the next 12 months. (See GOOGL stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.