When You Look Back in a Few Years, You'll Wish You'd Bought This $2 Trillion Artificial Intelligence (AI) Stock

Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) is the parent company of Google, YouTube, self-driving mobility developer Waymo, and artificial intelligence (AI) lab DeepMind. It's one of just four companies in the world with a market capitalization of at least $2 trillion, reflecting its consistent long-term growth and the quality of its brands.

Alphabet is currently investing heavily in AI across its entire organization. The technology is reshaping its core businesses and creating new opportunities to generate revenue, so it could be the conglomerate's most important driver of growth moving forward.

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Alphabet stock is trading 19% below its all-time high amid the broader market sell-off, and because of its ongoing legal battles with U.S. regulators. However, when investors look back on this moment in a few years, they might wish they had bought the stock today.

Image source: Alphabet.

AI is transforming Google Search

Google Search is Alphabet's most important business. During the first quarter of 2025 (ended March 31), it brought in $50.7 billion in revenue, which represented more than half of the conglomerate's total revenue of $90.2 billion. Since Google is the window to the internet with a staggering 90% market share in the search industry, businesses spend truckloads of money to advertise their products and services on the platform.

There were some concerns in the past that AI chatbots like OpenAI's ChatGPT could disrupt traditional search engines, because they can deliver direct answers to practically any query. But Alphabet countered those fears by creating its own family of large language models (LLMs) called Gemini, and a chatbot with the same name. In fact, the latest Gemini 2.5 model is widely recognized as the best in the industry, so Alphabet has not only caught up to the competition, but potentially surpassed it.

Alphabet is also applying its AI models to transform the traditional Google Search experience. The company launched AI Overviews last year, which combine text, images, and links to third-party sources to provide holistic responses that appear above the traditional Google Search results. This saves the user from sifting through web pages to find the information they need, and Alphabet says a whopping 1.5 billion people are already using Overviews per month.

Here's the most important part: AI Overviews monetize at roughly the same rate as regular Google Search results, so they aren't cannibalizing Alphabet's golden goose.

Google Cloud revenue continues to soar

Google Cloud offers businesses a suite of digital products and services to help them transition into the digital age. However, it also has a growing portfolio of AI services that could fuel the next phase of growth for the platform.

Google Cloud operates data centers filled with AI chips from leading suppliers like Nvidia, and businesses can rent the computing capacity to develop and deploy AI software into their operations. Google also designed its own chips called Tensor Processing Units (TPUs), and the latest version called Ironwood offers 10 times more computing power than the previous generation. Ironwood is specifically designed for performing AI inference, so it's ideal for next-generation reasoning models (like Gemini 2.5) which consume significantly more computing power than traditional LLMs.

On that note, the Vertex AI developer suite on Google Cloud offers access to over 200 foundation models like Gemini 2.5, and those from leading third parties like Anthropic and Meta Platforms. Businesses can combine these models with their internal data to significantly accelerate the development of custom AI software for their own needs.

Google Cloud generated a record $12.2 billion in total revenue during the first quarter of 2025, which was a 28% increase from the year-ago period. The platform could be doing even better because demand for its AI data center infrastructure continues to exceed supply. Alphabet allocated a record $17.2 billion toward capital expenditures during the quarter to build more capacity, and it plans to spend around $75 billion overall during 2025.

Alphabet stock looks like a bargain right now

Alphabet generated $2.81 in earnings per share (EPS) during the first quarter of 2025, representing year-over-year growth of 48%. The company's trailing-12-month EPS now stands at $8.97, placing its stock at a price-to-earnings (P/E) ratio of just 18.6. That makes Alphabet significantly cheaper than each of the other companies in the $2 trillion club:

PE Ratio data by YCharts

Ongoing regulatory issues are the main reason Alphabet is so cheap right now. The U.S. Department of Justice (DOJ) has won a couple of landmark cases since 2020, where it claimed Alphabet was monopolizing the search and advertising businesses, so investors are now awaiting the start of what could be lengthy appeals processes. If the judgements are upheld, Alphabet might be forced to sell certain assets like the Chrome internet browser or Android mobile operating system to level the playing field for competitors.

That would be a worst-case scenario and would dent Alphabet's earnings power. Some tech analysts think a judge is more likely to impose a financial penalty or force the company to change its business practices instead. For example, Alphabet will probably have to stop paying billions of dollars to Apple each year to make Google Search the default option on devices like the iPhone, forcing it to win market share on merit.

Alphabet could also face some headwinds from the tariffs President Donald Trump enacted on America's trading partners, and some of the retaliatory levies other countries have imposed. Alphabet primarily sells digital advertising and cloud services, which aren't directly subjected to tariffs (at least not yet), but if global trade tensions cause an economic slowdown, the company will suffer as businesses trim their spending.

Hopefully, this should only be a short-term issue considering the U.S. is already negotiating new trade deals with dozens of different countries.

Many of the above risks are priced into Alphabet's valuation, so if the company isn't broken up, and trade tensions are resolved, its stock could soar from here. On top of that, Alphabet is already a clear leader in the AI industry, which could be the biggest financial opportunity its search and cloud businesses have ever seen. As a result, when investors look back on this moment a few years from now, they might wish they had added Alphabet to their portfolio today.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.