Is Alphabet a Top Stock to Buy for 2025?

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) had a solid 2024, with the stock up over 40% as of the time of writing. With that kind of performance, it would be understandable if investors thought it couldn't have a great 2025. However, I don't think that's the case.

This tech giant has several strong tailwinds, and those winds aren't set to subside anytime soon (and certainly not in 2025). Furthermore, the stock is attractively priced, making Alphabet a great stock to consider heading into the new year.

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Alphabet's advertising business supports other investments

Alphabet does many things, but its primary business is still advertising through the Google search engine. In the third quarter, 56% of revenue came from the Google Search division, and that segment experienced 12% year-over-year revenue growth. Considering how mature this business segment is, that's highly respectable growth.

Having a rock-solid base segment like the search business allows Alphabet to invest its massive cash flows into other areas of its business. One area that has received a lot of attention lately is artificial intelligence (AI), especially generative AI. Alphabet has one of the top models in the space: Google Gemini.

Gemini usage has rapidly increased. Management states that its enterprise AI platform, Vertex, has seen Gemini usage increase 14 times in a six-month period. That's a massive figure and shows how Gemini is starting to become integrated into various clients' operations.

Most of this usage occurs through its cloud computing division, Google Cloud. While the cloud computing industry is benefiting as a whole amid the AI arms race, the general migration from on-site computing to cloud computing is still occurring. This dual effect is causing Google Cloud's revenue to rise rapidly, as revenue increased by 35% in Q3. That's far quicker than the 29% and 28% growth it experienced in Q2 and Q1, respectively.

Overall, Alphabet's business is doing great and is poised for another strong 2025, as Wall Street analysts project 12% revenue and earnings growth. While that's not flashy growth like some of its big tech peers are putting up, it's enough to surpass the broader market's long-term growth rate.

But there could be another catalyst that spurs Alphabet's stock higher in 2025.

Alphabet's stock isn't that expensive compared to its peers

Alphabet's valuation is best compared to its big tech siblings, which are often grouped into the "Magnificent Seven." Alphabet is the cheapest stock in terms of both the trailing price-to-earnings (P/E) ratio and the forward P/E ratio.

GOOGL PE Ratio data by YCharts

In fact, Alphabet doesn't hold much of a premium to the broader market, either. The S&P 500 trades for 25.2 times trailing earnings and 21.9 times forward earnings. So, compared to the broader market, Alphabet holds a reasonable price tag.

With all of these factors in mind, I think Alphabet is a stock that can beat the market next year; just don't expect it to blow Wall Street out of the water. The growth trends Alphabet is experiencing in the AI realm aren't going to subside anytime soon, and it will be a key investment area for many years. Although Alphabet had a solid 2024, I think 2025 will be another successful year for its investors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.