Alphabet Stock Rockets 15% in a Month—Can the AI Cash Machine Keep Delivering After Stellar Earnings?

Google’s parent company just posted numbers that made Wall Street drool—but is the party just getting started?

Alphabet’s Q2 earnings didn’t just beat expectations—they curb-stomped them. The stock’s already up 15% in 30 days. Now investors are scrambling to figure out if this is the new normal or just another hype cycle.

The AI gold rush is padding Alphabet’s pockets, but let’s not pretend this isn’t the same company that once thought ‘Google+’ was a good idea. Still, with cash reserves thicker than a Silicon Valley VC’s ego, they’ve got room to fail forward.

Here’s the real question: Is Alphabet finally learning how to monetize AI without tripping over its own bureaucracy? Or are we watching a ‘buy the rumor, sell the news’ play in 4K resolution?

One thing’s certain—when a stock moves this fast, somebody’s getting rich. And as always in tech investing, it’s probably not you.

Image source: Getty Images.

Google Search and Gemini are holding their own

The primary reason Alphabet has been undervalued relative to other mega-cap growth stocks is a lack of conviction that its investments in artificial intelligence (AI) will yield sufficient returns to offset the potential decline in its existing Core segments.

Alphabet has numerous moving parts, including Google Search, YouTube, Google Maps and Waze, Android, devices such as Pixel and Chromebook, Gmail and Google Workspace, Google Cloud, and "Other Bets" like Waymo. Despite a diversified lineup, the weight of Alphabet's success is still carried on the shoulders of Google Search.

In Alphabet's latest quarter, the company booked $96.43 billion in revenue, a 14% increase year over year (YOY). Google Search revenue came in at $54.19 billion -- an 11.7% increase YOY. Google Search is not declining; it is growing nicely and remains an integral part of the broader business despite worries that rival search and chatbot platforms WOULD be eating into its market share.

The misconception that Alphabet is lagging behind AI may finally be changing. Not only are Google Search and the rest of Alphabet's services doing well, but Alphabet's AI investments are producing impressive results.

Gemini, the company's Chatbot, is powered by Google DeepMind. Gemini is multimodal, meaning it can process text, images, video, audio, and code. Gemini has 450 million monthly active users -- a 50% increase from the first quarter. For context, reports indicate that OpenAI's ChatGPT reached 800 million weekly active users in July.

Alphabet's ecosystem has been expanding in the image-to-video market. On the second-quarter earnings call, Alphabet said that Veo 3, its video generation model, has produced over 70 million videos since May.

Alphabet AI tools have free, basic versions, and more advanced subscription services that can be bundled with other offerings in Google One on a single customer and enterprise scale. So, investors should closely watch how Alphabet continues to monetize these tools and determine if they have the potential to eventually contribute to the company's bottom line.

Google Cloud is thriving

Google Cloud remains a distant third behindWeb Services andAzure. But it's still a value-adding piece in Alphabet's portfolio.

Google Cloud revenue jumped 32% in the recent quarter as Alphabet rolled out a flurry of AI infrastructure and generative AI solutions for customers. In the past, Alphabet's advertising, subscription platforms, and devices have acted as cash cows and were used to fund Google Cloud and Other Bets. But Google Cloud's profitability has been improving despite aggressive investment.

In the recent quarter, Google Services generated a 40.1% operating margin while Google Cloud had a 20.8% operating margin, which is a lot higher than the 11.3% operating margin in the second quarter of 2024. Alphabet is proving that it can keep expanding Google Cloud since it is the company's fastest-growing segment by revenue, while also allowing Google Cloud to continue to the bottom line.

Alphabet is so optimistic about the success of its AI endeavors and cloud that it is boosting its 2025 capital expenditures (capex) budget to $85 billion. Alphabet's second-quarter capex was $22.4 billion, and around two-thirds of that capex was invested in servers, and one-third went to data centers and networking equipment.

Alphabet is far from a stalwart that is past its prime. The success is reflected in Alphabet's results and its investments in technical infrastructure. Alphabet can afford to ramp spending without compromising its balance sheet or profitability.

Alphabet is still a great value

Alphabet isn't as dirt cheap as it used to be, but the stock is still undervalued because its earnings continue to grow fast enough to keep a lid on its valuation. Over the last three years, Alphabet's stock price has roughly doubled, but earnings have also soared 86.5%. So given the solid earnings growth, Alphabet's price-to-earnings ratio remains compressed at just 20.6 -- a discount to its 10-year median of 28.6.

When I look at Alphabet, I see a company that is showing measurable progress in AI, spending that is paying off, resilience in its legacy cash cows like Google Search and YouTube, and growth in cloud computing.

All told, Alphabet checks all the boxes of a foundational growth stock to buy now.