Key Highlights
- Alphabet’s stock has surged 48% since September, driven by its Gemini 3 model and strong third-quarter earnings.
- Morningstar analyst Malik Ahmed Khan calls Gemini 3 a “major step up” from previous models, positioning Alphabet as an AI leader.
- Investors are questioning whether the stock is still a buy given potential risks in search queries, cloud growth, and capital expenditures.
The Surge of Alphabet’s Stock Amid AI Momentum
In a year when mega-sized technology stocks staged a broad rally, Alphabet’s GOOGL/GOOG shares have been one of the biggest winners. Since September 1, the stock has rallied by about 48%, leading to a 60.5% year-to-date gain and positioning it well above its previous all-time high set in 2021.
Alphabet’s latest Gemini 3 model solidified its standing in the artificial intelligence race, according to analyst Malik Ahmed Khan from Morningstar. “The leap to Gemini 3 and its ability to outshine its peers, especially OpenAI’s ChatGPT, has been the major catalyst,” he explains.
Key Factors Driving Alphabet’s Stock Performance
The stock’s recent performance can be attributed to several factors. Strong third-quarter earnings results have bolstered investor confidence. Additionally, a satisfactory resolution to Google’s antitrust case by Justice Mehta’s ruling has alleviated regulatory concerns. Furthermore, optimism surrounding the release of Gemini 3 as a large language model (LLM) has also played a significant role.
Khan highlights that Gemini 3’s “multi-modal” capabilities—meaning it can generate video and images in addition to text—are a “huge competitive advantage,” compelling users who previously relied on competing LLMs to switch. “The winnings accrue to the ones with multi-modal capabilities, and Google is significantly better than any of its peers now,” he notes.
Risks Remain for Alphabet Investors
Despite the stock’s robust performance, Khan points out that several risks remain. He suggests that a weakening in search queries, slowing cloud growth, or higher-than-expected capital expenditures could potentially cause the rally to falter. However, one reason for cautious optimism is the company’s new in-house tensor processing units (TPUs), which are custom chips for training and running LLMs.
Khan notes that TPUs are made at the same factory as Nvidia GPUs, highlighting a bottleneck shared with both companies. “This opens up a new monetization vector through third-party deployments,” he says, citing Alphabet’s recent partnership with Anthropic. However, there is also concern over Alphabet’s limited scale in producing TPUs compared to rivals.
Valuation and Long-Term Outlook
Morningstar estimates the fair value of Alphabet at $340 per share, up from $237 in September. The firm forecasts a compound annual growth rate (CAGR) of 13% over the next five years for Alphabet’s top line. While Khan sees strong potential in Google Search, YouTube, and Waymo, he notes that 30%-40% of Alphabet’s business value comes from Google Search.
Despite the current positive narrative surrounding search, Khan remains cautious about its long-term impact on the company. “The view has emerged that Search isn’t as dead as we thought it was,” he says. “Long term, search may still be impacted, but we don’t have to worry about that right now.”
Alphabet’s stock performance is a testament to the growing importance of artificial intelligence in tech companies. However, investors should remain vigilant given the ongoing risks and uncertainties.