Can Google Cloud's Growing Clientele Push the GOOGL Stock Higher?

Alphabet GOOGL has been benefiting from a growing Google Cloud business that accounted for 13.6% of total revenues in the first quarter of 2025. Google Cloud revenues jumped 28.1% year over year to $12.26 billion, driven by strong GCP growth and a solid demand for AI infrastructure as well as generative AI solutions. Google Cloud is now expanding its footprint based on the latest deals with Ecobank in Africa and BBVA.According to Synergy Research Group data, Google Cloud, along with Microsoft MSFT, is gaining market share, while Amazon’s AMZN cloud arm, Amazon Web Services, continues to lead with a 29% market share in the first quarter of 2025. Alphabet and Microsoft had 22% and 12% market share, respectively. Google Cloud is benefiting from an expanding clientele and rich partner base. Google Cloud is benefiting from its partnership with NVIDIA NVDA. Google Cloud was the first cloud provider to offer NVIDIA’s B200 and GB200 Blackwell GPUs and will be offering its next-generation Vera Rubin GPUs. Google Cloud is becoming a preferred choice for enterprises planning to deploy AI agents thanks to the Agent Development Kit and a low-code tool offering Agent Designer. The addition of Wiz to Google Cloud will boost competitive prowess against the likes of Amazon and Microsoft in the cloud computing space. Google Cloud’s expanding clientele is expected to boost Alphabet’s top line. BBVA’s deal with Google Cloud will enable it to deploy Google Workspace with Gemini across the global operations of the bank. Meanwhile, the Ecobank collaboration aims at transforming financial services with advanced analytics and AI and driving digital empowerment across Africa. This offers a significant growth opportunity for Google Cloud in one of the most underpenetrated regions of the globe.Can AI Innovation Boost GOOGL’s Prospects?Alphabet shares have dropped 6.8% year to date, underperforming the broader Zacks Computer & Technology sector’s appreciation of 7%. GOOGL shares have underperformed Microsoft and Amazon, two of its closest competitors in the cloud computing domain.GOOGL Stock’s Performance Image Source: Zacks Investment Research Alphabet’s focus on leveraging AI to drive growth is a key catalyst. AI is infused heavily across its offerings, including Search, Google Cloud and Pixel. Alphabet has been taking up initiatives to improve its market share in Search through AI innovations. The addition of AI mode expands AI Overview’s advanced reasoning, thinking and multimodal capabilities. AI Overviews is driving a more than 10% increase in the usage of Google for queries that support AI Overviews in Google’s biggest markets, like India and the United States. AI Overview is currently used by more than 1.5 billion people monthly. AI mode is now available in the United States. Circle to Search has been another key catalyst driving user engagement. At the end of the first quarter of 2025, Circle to Search was available on 250 million devices, with usage increasing roughly 40% during the quarter.Earnings Estimate Revisions Steady for GOOGLThe Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at $2.12 per share, unchanged over the past 30 days, indicating 12.17% year-over-year growth.  Alphabet Inc. Price and Consensus Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote The consensus mark for 2025 earnings is pegged at $9.53 per share, unchanged over the past 30 days, suggesting 18.53% year-over-year growth.GOOGL is a Risky Stock on Regulatory HeadwindsRegulatory headwinds like the lawsuit between the Department of Justice (DOJ) and GOOGL over Google Search are a concern. The DOJ argues that Google has inked anticompetitive deals with Apple and other companies for prime placement of its search engine and plans to break up Google to separate products like Chrome, Search and Android. DOJ’s proposal doesn’t bode well for Alphabet, given growing competition from AI-powered products like ChatGPT, Grok, DeepSeek, Perplexity and Meta AI.GOOGL is suffering from a lack of capacity, and until new capacity comes online this year, cloud revenues are expected to witness increased variability. The company expects to invest roughly $75 billion in capital expenditures in 2025, which is aimed at building up technical infrastructure, primarily for servers, followed by data centers and networking. Alphabet expects advertising revenue growth to be lower due to a challenging year-over-year comparison. The company enjoyed solid growth in the financial services vertical in 2024.GOOGL Stock is OvervaluedThe Value Score of C suggests a stretched valuation for Alphabet at this moment.Alphabet stock is trading at a premium, with a forward 12-month Price/Sales of 6.22X compared with the Zacks Internet Services industry’s 5.33X.Price/Sales Ratio (F12M) Image Source: Zacks Investment Research ConclusionAlphabet’s growing AI capabilities and significant investments in cloud computing bode well for long-term investors. So, investors who have already invested in GOOGL stock should stay put.However, stiff competition in the cloud space, as well as the search engine market and increasing regulatory headwinds make the GOOGL stock risky in the near term.Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to start accumulating the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Picks Stock Most Likely to "At Least Double"Our experts have revealed their Top 5 recommendations with money-doubling potential – and Director of Research Sheraz Mian believes one is superior to the others. Of course, all our picks aren’t winners but this one could far surpass earlier recommendations like Hims & Hers Health, which shot up +209%.See Our Top Stock to Double (Plus 4 Runners Up) >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks