A Cloud Stock Set for Massive Gains

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        <p class="yf-7hmkaz">Google Cloud is rapidly expanding and becoming a significant profit source for Alphabet.</p>
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        <p class="yf-7hmkaz">The company's investment in AI infrastructure is increasing sharply, elevating execution risks.</p>
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        <p class="yf-7hmkaz">With shares trading at approximately 30 times earnings, they don’t come cheap. But should investors still consider buying?</p>
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        <p class="yf-7hmkaz"><a target="_blank" class="link" href="https://api.fool.com/infotron/infotrack/click?apikey=35527423-a535-4519-a07f-20014582e03e&amp;impression=0dbcbd29-af93-4510-80af-aed69a4e3069&amp;url=https%3A%2F%2Fwww.fool.com%2Fmms%2Fmark%2Fe-sa-nonbbn-kp%3Faid%3D8867%26source%3Disaedikp0000053%26ftm_cam%3Dsa-bbn-evergreen%26ftm_veh%3Dkeypoints_pitch_feed_yahoo%26ftm_pit%3D17670" rel="nofollow noopener">10 stocks we like better than Alphabet ›</a></p>
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    <p class="yf-7hmkaz">Investors interested in a top stock with long-term potential in AI typically look at chip manufacturers. However, the greater potential could lie with the platforms already dominating the internet's most valuable data and attention.</p>
    <p class="yf-7hmkaz">This is why Alphabet (NASDAQ: GOOGL) merits closer examination. While the tech giant remains widely recognized for Google Search and YouTube, the more significant change for shareholders may be found in Google Cloud and its ability to convert AI demand into sustainable, profitable growth.</p>
    <p class="yf-7hmkaz">Alphabet's third-quarter results indicate that this transition is taking place. Total revenue surged by 16% to $102.3 billion, while Google Cloud revenue soared by 34% to $15.2 billion, with operating income up 85% to $3.6 billion. Furthermore, the cloud segment’s backlog rose by 46% year-over-year to $155 billion, reflecting long-term commitments as clients prepare for AI-focused workloads.</p>
    <p class="yf-7hmkaz">Google Cloud is evolving from merely being a growing segment within a larger advertising company to a key contributor that can significantly impact Alphabet's overall growth trajectory.</p>
    <p class="yf-7hmkaz">The momentum in Google Cloud is noteworthy for several reasons: It establishes a clearer secondary growth driver for Alphabet. While advertising will likely remain the primary revenue source for a while, the cyclical nature of ad spending and continuous competition contrast against the sustained demand for cloud computing driven by enterprises upgrading their IT systems and developing AI applications.</p>
    <p class="yf-7hmkaz">Moreover, Alphabet's cloud business is expanding more rapidly than the overall company’s growth, enhancing its influence on overall revenue rates, which could extend Alphabet's growth narrative. The segment also exhibited operating leverage, revealing a 23.7% operating margin in Q3, up from 17.1% the previous year, highlighting its potential as a long-term earnings driver.</p>
    <p class="yf-7hmkaz">However, Alphabet's commitment to AI infrastructure entails significant financial investment. The company's capital expenditures reached $24 billion in Q3, with expectations to hit $91-$93 billion for the full year of 2025, posing a substantial challenge for performance return. Additionally, with shares priced at around 30 times earnings, the valuation suggests that continued growth will be necessary, particularly in Google Cloud.</p>
    <p class="yf-7hmkaz">In a competitive landscape against giants like Microsoft and Amazon, Alphabet needs to continually advance its AI offerings and secure major cloud contracts while also safeguarding its advertising revenues. Ultimately, despite the associated risks, Alphabet's diversified business model combined with robust cloud momentum makes it a compelling investment, albeit one that should be approached modestly.</p>
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