Alphabet Earnings: Let’s Google; Search Strength and Cloud Momentum Drive FVE Upgrade

Key Morningstar Metrics for Alphabet

• Fair Value Estimate: $340
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Alphabet’s Earnings

Alphabet GOOG reported solid third-quarter earnings with sales growing 16% to $102 billion and adjusted operating margins expanding 160 basis points to 34%. Google Cloud continues to fire on all cylinders, accelerating sequentially to 34% growth in the quarter, constituting 15% of total sales.

Why it matters: Alphabet’s execution on artificial intelligence, evidenced by strong traction for its Gemini app, which has more than 650 million monthly users, along with its ability to deliver solid advertising revenue, continues to drive results while refuting the AI-led disruption narrative.

• Within search, we like AI Overviews and AI Mode as tools that not only retain users but also drive incremental query growth and improved user engagement. With higher query growth driven by these AI features, Alphabet can increase its ad inventory, lifting sales in the process.
• Also, as agent-driven web browsing takes off, having access to and control over Chrome’s multibillion-user base will be crucial, as agentic commerce features could allow Alphabet to command a hefty take rate on agent-led commerce activity, unlocking a new growth vector.

The bottom line: We are raising our fair value estimate for wide-moat Alphabet to $340 from $300 following the firm’s quarterly results, which blew past our expectations. The 79% growth in the firm’s Google Cloud backlog, up from 37% last quarter, points to an inflection in cloud demand coming in 2026.

• Based on the massive increase in Google Cloud’s backlog, we are raising our Google Cloud five-year growth to 34%, up from 30% in our prior forecast. This increase is the key driver behind our fair value increase.
• In the past six months, Alphabet’s stock has risen more than 75% as the market has come to agree with our view of Alphabet as an AI leader, not a laggard. With our fair value increase, we see further upside as Google Cloud continues to drive AI monetization while search remains solid.