Down 6%, Should You Buy the Dip on Alphabet?
Key Points
Alphabet reported stellar revenue and profit growth in Q4, with YouTube crossing the $60 billion sales mark for the full year.
Robust demand for enterprise AI solutions at Google Cloud supports management's decision to boost capital expenditures.
The technology stock has been a big winner in the past, and there's every reason to think that will continue into the future.
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Investors are laser-focused on the ongoing artificial intelligence (AI) boom, as they figure out ways to gain exposure to what could shake out to be a game-changing tech trend. There might be solid opportunities right under your nose.
Take a closer look at Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), whose shares are trading 6% off their high (as of Feb. 9). Should you buy the dip?
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Image source: Alphabet.
Alphabet's momentum isn't letting up
The business just finished off a banner year in 2025. Alphabet's revenue increased 18% year over year in the fourth quarter to $113.8 billion. It's very encouraging to see this kind of growth coming after an election year in 2024, when ad spending gets a boost.
The flagship segment, Google Search, saw the top line expand by 17% in the fourth quarter. YouTube registered revenue (between advertising and subscriptions) of more than $60 billion for the full year.
The bottom line had a better showing. Net income soared 30% in Q4 compared to the same period in 2024. Alphabet beat Wall Street revenue and earnings estimates.
Betting it all on AI
Last year, Alphabet's capital expenditures (capex) totaled $91 billion, which was a huge jump from the prior year. Management has raised the stakes even more; the company's capex forecast for 2026 is a whopping $175 billion to $185 billion. This money will go toward building AI-related technical infrastructure, like servers, data centers, and networking equipment.
Alphabet is in an advantageous position because of how popular its products and services are. Investing in AI capabilities can help to improve the user experience, leading to greater usage. Ultimately, this engagement can keep propelling revenue.
There's already strong adoption. The Gemini app now has 750 million monthly active users. Advertisers are leveraging AI tools as well. "AI gives businesses the ability to reach more customers in more places than ever before," Chief Business Officer Philipp Schindler said on the Q4 2025 earnings call.
Google Cloud, which posted fantastic Q4 revenue growth of 48%, has a massive $240 billion backlog. According to CFO Anat Ashkenazi, there is robust demand for enterprise AI offerings. That makes sense, as no company wants to fall behind.
Take advantage of the opportunity
In the past five years, Alphabet's share price has climbed 211%, crushing the overall stock market. The performance gap isn't even close.
Even with that rise in the rearview mirror, the current valuation isn't stretched. With the stock trading at a forward price-to-earnings ratio at 28.7, investors should take advantage of the opportunity and buy the dip. Alphabet can continue to be a wonderful long-term investment.
Should you buy stock in Alphabet right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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