Alphabet (GOOGL -0.26%) (GOOG -0.24%) currently trades at $196 per share. However, Morgan Stanley analysts led by Brian Nowak have outlined a bull-case scenario where the stock advanced 38% to $270 per share in 2025, driven by strong revenue growth across its advertising and cloud computing businesses.
That price appreciation would push Alphabet’s market value to $3.3 trillion, landing the company in an exclusive club that currently has just three members: Apple is worth $3.9 trillion, Nvidia is worth $3.4 trillion, and Microsoft is worth $3.3 trillion. Read on to learn more about this brilliant artificial intelligence stock.
Alphabet is leaning on artificial intelligence across its advertising and cloud services businesses
Alphabet-subsidiary Google has two important growth engines in digital advertising and cloud computing, and both markets are forecast to expand quickly. Specifically, eMarketer estimates digital ad spending will grow at 10% annually through 2028, and the International Data Corporation (IDC) estimates public cloud services spending will grow at 19% annually during the same period.
Google’s ad revenue is projected to total $188 billion in 2024, which represents about 20% of global digital ad spending. The company is expected to more or less maintain its market share in the next few years. Estimates from eMarketer put its advertising revenue at $220 billion in 2026, which represents 20% of the forecasted $1.1 trillion in digital ad spending.
Google’s leadership in digital advertising is due in large part to its ability to source data and target content across Google Search and YouTube. So, the company is leaning on artificial intelligence (AI) to improve those platforms. For instance, generative AI overviews in Google Search are increasing usage and satisfaction, according to CEO Sundar Pichai.
The company has also introduced other ad tech tools that lean on generative AI or machine learning to help brands create media assets and design advertising campaigns with less effort. That type of innovation should help Google retain its digital advertising market share despite competition from retailers like Amazon and Walmart, and potential competition from start-ups like OpenAI.
Meanwhile, Google Cloud accounted for 13% of cloud infrastructure and platform services spending in the third quarter, up from 12% in the previous quarter and 11% in the previous year. The company is a recognized leader in AI infrastructure solutions and foundational large language models, and that expertise has contributed to market share gains.
CEO Sundar Pichai told analysts on the third-quarter earnings call, “Our technology leadership and AI portfolio are helping us attract new customers, win larger deals, and drive 30% deeper product adoption with existing customers.” That momentum could help Google gain more market share in the coming quarters, especially as the company continues to improve its Gemini model.
Image source: Getty Images.
Alphabet’s share price may not hit $270 in 2025, but the stock is still a brilliant long-term investment
Morgan Stanley’s bull-case target price of $270 per share is based on a discounted cash flow model that assumes revenue increases 17% in 2024 and increases at 14% annually through 2027. That is plausible given the projected growth in digital ad and public cloud services spending, but a lot would need to go right for the company.
However, Alphabet is still a compelling investment idea ahead of 2025. The stock trades at 26 times earnings, which is quite reasonable when Wall Street anticipates earnings growth of 16.5% annually in the next three years. The company may even top that estimate if investments in AI help it maintain market share in digital advertising and gain share in public cloud services.
Additionally, Alphabet has another big catalyst on the horizon in the potential resolution of regulatory issues. Federal Judge Amit Mehta earlier this year found the company had acted illegally to keep its monopoly in internet search. He will issue a decision about how to resolve the antitrust violation in August 2025.
The Justice Department has asked that Alphabet be required to divest its Chrome browser. That would be a blow to its market share in internet search. However, historical precedent says a breakup is unlikely. Once investors have more assurance on that issue, the market may afford the stock a higher valuation multiple.
Here is the bottom line: Alphabet shares already trade at a reasonable valuation. But potential AI-driven share gains in cloud computing, coupled with the likely resolution of certain regulatory issues, make the stock a brilliant option for long-term investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
