Alphabet (NASDAQ: GOOGL), the parent company of Google, continues to deliver impressive financial results as it benefits from global digital transformation, the rise of artificial intelligence (AI), and steady advertising recovery. The company’s third-quarter 2025 earnings report showed strong top-line and bottom-line growth, reaffirming Alphabet’s position as one of the most profitable and innovative tech giants. In this article we will dive into Alphabet recent earnings, stock performance & valuation, growth potential, and the risks investor should consider.
About Alphabet
Founded in 1998 by Larry Page and
Sergey Brin, Alphabet Inc. has grown from a search engine into a global
technology powerhouse based in Mountain View, California. Its main segments
include Google Services (Search, YouTube, Maps, Android, and Google Play),
Google Cloud, and Other Bets like Waymo and Verily. Google’s core business
relies on digital advertising, while YouTube and Cloud drive strong growth.
Other Bets focus on future innovations in areas such as autonomous driving and
health technology.
Alphabet Financial Performance
Alphabet delivered strong
financial results in Q3 2025, showcasing impressive year-over-year growth
across key metrics. The company reported revenue of $102.34 billion, up 15.95%
from $88.27 billion in Q3 2024, driven by solid performance in digital
advertising and cloud services. Earnings per share (EPS) rose 35.35% to $2.87
from $2.12 a year earlier, reflecting improved operational efficiency. On a
trailing twelve-month (TTM) basis, revenue reached $385.47 billion, an increase
of 13.42%, while EPS climbed 34.51% to $10.14. Free cash flow per share (TTM)
also rose 34.53% to $6.00, demonstrating strong cash generation. Alphabet
maintained robust profitability with a gross profit margin of 59.17%, net
profit margin of 32.23%, and free cash flow margin of 19.08%. The company’s return
on assets (ROA) stood at 16.28%, and return on equity (ROE) at 35.45%,
highlighting efficient capital use. With a debt-to-equity ratio of just 0.11,
Alphabet remains financially solid.
Over the past five years,
Alphabet has grown its revenue at a 17% CAGR, net income at 26.8%, and free
cash flow at 12%. The company has been a strong compounder in the past and is
likely to continue this trend in the future.
Alphabet Fiscal 2025 Financial
Forecast
Looking ahead, analysts forecast
2025 revenue of $399.58 billion, a 14.16% increase from 2024, and project non-GAAP
EPS of $10.49, up 30.5% year over year. Wallstreet analysts maintain a Buy
rating with an average price target of $314.18 suggesting a potential 13.2%
upside, while the highest price target estimate reaches $360, implying
potential upside of 29.76%.
GOOGL Stock Price Performance
and Valuation
At the time this article was written, Alphabet stock was trading $277.54 per share. The stock has surged 64% over the past year, far exceeding the S&P 500’s 18.5% gain during the same period. Over the last five years, Alphabet shares have risen 215.4%, compared to the S&P 500’s 92.8% increase, reflecting consistent growth and investor confidence.
The company recently initiated a modest dividend yield of 0.3%,
underscoring its strong cash position. From a valuation standpoint, Alphabet
trades at a price-to-sales (P/S) ratio of 8.95, with a forward P/S of 8.57. Its
non-GAAP P/E (TTM) is 27.98 and the forward P/E is 27.04. While the price-to-free-cash-flow
(P/FCF) ratio remains high at 45.53.
Based on Fiscal.ai data, over the
past five years, the forward P/S, forward P/E, and P/FCF ratios have all been
above average. While the valuation appears high, the forward P/E remains at a
reasonable level and is justified by the company’s dominant market position,
strong profitability, and consistent financial growth.
Alphabet Growth Potential
Alphabet growth prospect remains
robust driven by several factors.
- AI-Powered Search Expansion
and Query Growth
Alphabet’s search business showed strong resilience and growth with $56.6 billion in revenue, up 15% year-over-year in Q3 2025. The integration of AI features like AI Overviews and AI Mode has deeply enhanced the search experience, driving additional query growth rather than replacing existing ones. CEO Sundar Pichai highlighted that AI Overviews had an even stronger impact in Q3, especially among younger users. AI Mode usage doubled in the quarter, reaching 75 million daily active users.
Those using AI Overviews performed 10% more searches over time than non-users. Alphabet shipped over 100 product improvements that quarter, illustrating fast innovation cycles. These AI capabilities have expanded Alphabet’s market by making search more interactive and feature-rich, especially attracting younger demographics and signaling strong long-term user engagement and monetization potential. - Google Cloud's Enterprise AI
Adoption and Profitability
In Q3 2025, Google Cloud generated $15.2 billion in revenue, representing a remarkable 34% year-over-year growth and significantly outpacing the company's overall expansion. The cloud division's operating income reached $3.6 billion, illustrating substantial profitability, which contrasts with past losses and signals operational leverage. Alphabet's cloud backlog surged 46% quarter-over-quarter to $155 billion, providing long-term revenue visibility and indicating strong enterprise demand driven by AI and generative AI product adoption.
Management highlighted more than $1 billion deals signed, exceeding totals from the prior two years, showcasing larger, more committed enterprise customers. The diversification across 13 product lines surpassing $1 billion annual run rates, along with over 70% of existing customers utilizing AI products, underscores Google Cloud’s leadership and rapid growth potential as a primary engine for Alphabet’s future expansion. - Subscriptions Portfolio and
Recurring Revenue Diversification
In Q3 2025, Alphabet surpassed 300 million paid subscriptions, up notably from 270 million in April. The subscriptions, platforms, and devices segment generated $12.9 billion in revenue, a 21% year-over-year increase that outpaced overall company growth. This growth was driven primarily by strong performances in Google One storage and YouTube Premium subscriptions. YouTube Music and Premium subscriptions exceeded 125 million globally as of March 2025, benefiting from expanded original content and features.
Google One gained momentum through increased cloud storage demand and tight ecosystem integration. Alphabet now has thirteen product lines with over $1 billion in annual run rates, signaling a broader business model beyond advertising. These recurring revenues reduce volatility, enhance customer lifetime value, and offer higher margins. The ongoing integration of Gemini AI across these services is expected to accelerate subscription growth and monetization pathways.
Risks to Consider
While Google looks like a good
investment opportunity, we should be mindful of potential risks.
- AI Competitive Threats to
Search Revenue
Some analysts warn that Alphabet could face a significant decline of 20-25% in its core search revenue this year due to competition from AI-driven search alternatives and other AI competitors. However, recent data indicates Google Search continues to show strong growth despite these challenges. The rise of AI-native tools is reshaping the search landscape, creating uncertainty around Google's traditional dominance in search advertising and user engagement. - Strong Cloud Business
Competition
Alphabet's cloud business faces strong competition from Microsoft and Amazon, the top two cloud providers holding around 22% and 29% global market share respectively. Alphabet's Google Cloud, under CEO Sundar Pichai, has grown its market share to about 12-13% in 2025 with $15 billion Q3 revenue, driven by AI infrastructure investment. However, the need for heavy capital expenditure to expand capacity and meet AI demand pressures margins, creating risks despite growth momentum. - Regulatory and Antitrust Risks
Alphabet faces ongoing antitrust scrutiny globally, especially in Europe and the US. The European Union has fined Alphabet over €8 billion for abusing dominance in Google Search, Chrome, and Android, with recent complaints under the Digital Markets Act alleging restrictions on uninstalling pre-installed apps. In the US, the Department of Justice accused Alphabet of monopolistic search practices and sought remedies like splitting Chrome, though divestiture was rejected. These regulatory challenges risk impacting Alphabet's core assets and require continued compliance.
Conclusion
Alphabet Inc. continues to demonstrate exceptional financial strength and growth momentum, supported by its dominant position in digital advertising, cloud computing, and AI innovation. With strong revenue and earnings growth, high profitability, and a solid balance sheet, the company remains well-positioned for long-term success. Despite significant stock gains, Alphabet’s valuation is still reasonable given its growth outlook. Backed by consistent performance and innovation, Alphabet remains a compelling buy for investors seeking sustainable growth and value.
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