Alphabet Continues to Defy Skeptics as Search Revenue Jumps. Is It Time to Buy the Stock While It's Still On Sale?

The reports of Google's death have been greatly exaggerated. If you've recently spent any time on X (formerly Twitter), you've probably read that Google search is a dying business.

However, Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) first-quarter results once again demonstrate why investors shouldn't begin shoveling dirt on it just yet. Its Google search revenue climbed 10% to a whopping $50.7 billion. It saw strength across verticals, led by the insurance, retail, healthcare, and travel industries. It added that its new multimodality features continue to drive search queries, while its circle-to-search usage increased 40% in the quarter. Circle-to-search allows Android users to search by circling or highlighting text. It can then help users shop for a similar item or even translate text.

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At the same time, it has 1.5 billion AI Overview users a month. In March, it released AI mode, which will provide its AI Overviews with more advanced reasoning, thinking, and multimodal capabilities. It said its AI Overviews continue to be monetized at a similar rate to search and that it will continue to look to innovate more on this front.

Google Cloud continues to drive growth

While search remains strong, cloud computing continues to be the biggest growth engine for the company. Google Cloud revenue in Q1 jumped 28% year over year to $12.3 billion, while segment operating income soared 142% to $2.2 billion. The company said its Google Cloud Platform (GCP) grew much faster than its overall cloud business. GCP encompasses its AI infrastructure and generative AI solutions, while Google Cloud as a whole also includes Google Workspace, home to Gmail and its worker productivity apps.

Alphabet said it will see variability in Google Cloud revenue growth throughout the year based on the timing of new capacity coming online. The business remains capacity-constrained given high demand, and much of its high-capacity deployments are expected to be toward the end of the year. It is investing $75 billion in capital expenditure (capex) to help build out its data center capacity.

YouTube, meanwhile, also continues to deliver solid results, with ad revenue rising 10% to $8.9 billion. YouTube, along with Google One (cloud storage), also helped drive a 19% increase in its subscription and device revenue to $10.4 billion. It noted that YouTube has been the No. 1 streaming service in the U.S. by watch time over the past two years.

The company also highlighted the strong growth of its Waymo robotaxi business. It is now delivering 250,000 paid trips a week, which is up 5x from a year ago. And if my math is correct, that's 250,000 more paid trips than Tesla currently has. Waymo will launch in Atlanta later this year and then go live in Miami and Washington, D.C., in 2026.

Overall, Alphabet grew its total quarterly revenue by 12% (14% on a constant currency basis), to $90.2 billion. Earnings per share, meanwhile, soared 49% year over year to $2.81. That easily topped analyst consensus estimates, which were calling for EPS of $2.01 on revenue of $89.1 billion, as compiled by LSEG.

Looking ahead, Alphabet said it would see a "slight headwind" to its ad business from Asian retailers due to the change in the de minimis exemption that will occur in May. Chinese retailers like Temu and Shein have benefited from a rule that allowed shipments worth less than $800 to enter the U.S. duty-free, but that loophole is being closed. These companies have been heavy digital advertisers in the U.S., but have pulled back their spending in response to the U.S.-China tariff war. It added that it was not immune to the macro environment, but that it has a lot of experience in managing through uncertain times.

The company also repurchased $15.1 billion in shares in Q1 and announced a new $70 billion buyback. The buyback plan should lend some support to the stock.

Image source: Getty Images

Is it time to buy the stock?

Alphabet once again showed why it's a stock that investors should not overlook. Its search business remains strong, despite continued investor skepticism, while its cloud business is a growth driver. Meanwhile, the company also gets little credit for its emerging Waymo business, while Tesla's stock seemingly rallies anytime its CEO utters the words robotaxi, cybercab, or autonomous driving.

The truth of the matter is that AI is not replacing search. AI has many great uses and is a great complement to search, but it's also a heavy power-consuming process that is significantly more expensive to run than search. As a result, how AI is used and gets monetized will evolve, and search will still be good for the simple queries for which it has traditionally been used.

Alphabet's position in AI also should not be underestimated, as its newest Gemini model is a strong offering, and it is leading the way in areas such as text-to-video with Veo 2.

Investor skepticism, however, has placed Alphabet's stock in the bargain bin. It trades at a forward price-to-earnings ratio (P/E) of about 18 times 2025 analyst estimates for a collection of attractive market-leading and emerging businesses. This makes it a great buy over the long run.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy.