Alphabet (NASDAQ:GOOG) is a mega-cap tech giant that’s seen absolutely incredible growth in recent years. This year alone, Alphabet has seen its market capitalization surge above the $2 trillion level, with the company’s share price rising nearly 20% over the span of the past 11 months or so.
We still have another month left in the year for GOOG stock to make a push for new highs. But a move toward a $3 trillion valuation, which would require a surge of around 50% from current levels, is one that not many investors have on their bingo cards for 2025.
That makes sense, given Alphabet’s relatively slower-growth nature compared to other mega-cap tech peers – we’re not talking about Nvidia (NASDAQ:NVDA) here. This relatively slower growth rate (notable but not surprising, given Alphabet’s sheer size and dominance in the online advertising and search markets) has led to a valuation multiple of just 22-times trailing earnings. However, if a key catalysts were to come along that would inspire the market to assign a higher valuation multiple to this stock (in combination with earnings growth acceleration), I think a $3 trillion could certainly be in the cards by the end of next year.
Let’s dive into the bull case behind what would lead Alphabet to a $3 trillion valuation by the end of 2025, and how the company may achieve such a market capitalization.
Key Points About This Article:
- Alphabet remains one of the top mega-cap growth stocks investors continue to weight heavily in their portfolios due to its massive market capitalization and importance to various indices.
- Even at such size, and with slower relative growth compared to other mega-cap tech stocks, this is a company that could indeed see a $3 trillion valuation by the end of next year. Here’s how.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Excellent Q3 Results
I think a big factor that’s going to determine whether Alphabet can surge toward a $3 trillion valuation will be the company’s ability to see fundamental improvement across the board. Thus far, 2024 has been a good year for investors looking for revenue and earnings growth, as the company’s robust Q3 2024 earnings showed.
Alphabet brought in $88.27 billion during the quarter, a 15% increase from the $77 billion the company reported in the same quarter a year prior. Perhaps more importantly to the story behind why GOOG stock has continued to outperform is the company’s net income growth, with earnings surging from $19.69 billion during Q3 2023 to $26.3 billion this past quarter. This earnings growth rate amounts to more than 33%, and is a key reason why GOOG stock popped following this earnings report.
Now, at the time of writing, the company has since given up these gains, leading some investors to question whether this stock is an excellent buy at current levels. I’d certainly think so, given the company’s impressive earnings growth momentum as well as the company’s improved margins driven by continuous innovation and strategic AI investments. New AI-driven features in Search have enhanced the user experience, while AI solutions boosted Cloud’s customer base and deal size. YouTube’s combined ad and subscription revenue also exceeded $50 billion for the first time over the last four quarters. If this sort of momentum continues in the coming quarters, I do think a pathway toward a $3 trillion is viable.
An AI Leader
The influence of generative AI on Google’s search ad business remains a major investor focus. Alphabet’s Q3 earnings highlighted its resilience in the competitive AI landscape, with obvious contenders such as OpenAI’s ChatGPT web search vying for market share in this profitable space. Concerns around Google’s ability to hold its market share in terms of global internet search has driven some investors to look for alternatives. However, the company’s response in planning to launch “Jarvis” in December could be the remedy that shifts the landscape back into Alphabet/Google’s favor.
This particular AI tool is designed to autonomously perform browser-based tasks like research, shopping, and travel bookings, countering new AI-driven competition. With Google’s market share in these key segments coming under increasing pressure, we’ll have to see if the company’s response to newfound innovation in this world cements its position as the market leader. I do think Alphabet has the deep pockets and expertise to do so, and the company continues to invest heavily in these endeavors. Ultimately, the market will decide if there’s room for another player, but I do think the edge should go to the incumbent at least for now.
GOOG Stock Still Looks Like a Buy
Most market analysts still rate GOOG stock as a buy, with varying price targets which suggest a high price target of $225 per share could be hit by the end of next year. At that share price level, Alphabet would be valued at roughly $2.74 trillion, so a $3 trillion call would imply even further upside from there.
It’s certainly a bullish position to take on the search giant, but one I think may not be out of consensus if Alphabet can post the kinds of earnings growth it has in recent quarters. Again, I think it will mostly come down to fundamentals for this search giant.
Of course, competitive headwinds from other AI competitors looking to eke out market share in the search space could derail this thesis. On that front, we’ll have to see what sort of progress Alphabet is able to make on solidifying its moat and providing its own AI search products end users will reach for. With the company’s Gemini AI models creating problems in the past, this is certainly an area I’d focus on as a key potential pain point on the search for the next psychological valuation threshold.
I do think Alphabet will ultimately hit this valuation, and perhaps predicting such a move by the end of next year is too bold. Or perhaps not.
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