Why Alphabet Rallied 15.7% in October

Shares of Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) rallied 15.7% in October, according to data from S&P Global Market Intelligence.

Alphabet had a busy month even prior to the company's third quarter earnings report on Oct. 29. Almost all of the developments were positive, as Alphabet appears to be executing quite well on multiple fronts, both in its core businesses as well as new ventures.

Image source: Getty Images.

Google defies the skeptics

In the third quarter, Alphabet grew revenue 16% to $102.3 billion, with earnings per share rising 35% to $2.37. Both figures handily beat analyst expectations.

Everything seemed to click with Alphabet last quarter. The core Search franchise, which had some worried due to the rise of AI chatbot competition, saw solid double-digit growth at 14.5%, defying those fears. Even on a volume basis, Alphabet is still growing Search volume, as paid clicks grew 7% in the quarter. That was even an acceleration over the prior quarter's 4% paid click growth.

The success in Search appears to show the company's efforts to enhance Search with AI, including AI overviews and the "AI mode" Alphabet rolled out earlier this year, are working.

Meanwhile, Alphabet's Cloud growth, which serves many AI-related start-ups, grew a strong 34%, while Cloud operating income surged a whopping 85%, as the segment's operating margins expanded from 17.1% in the year-ago quarter to 23.7%.

Throughout the month, Alphabet also received good news on a number of next-generation technology fronts. Earlier in October, sell-side analysts at Wedbush conducted a consumer survey showing consumers are growing more comfortable with autonomous ride-hailing, where Alphabet's Waymo currently leads.

Alphabet CEO Sundar Pichai also posted on X announcing Alphabet's latest quantum computing milestone. In the post, Pichai noted Alphabet's new algorithm run on its proprietary Willow quantum chip had achieved the "first-ever verifiable quantum advantage." Quantum advantage means that a quantum computer can be proven to solve a real-world problem faster than a classical algorithm running on the world's fastest supercomputer.

Finally, there was also good news around AI start-up Anthropic, in which Amazon (NASDAQ: AMZN) is a key shareholder but in which Alphabet has also invested. During October, Anthropic announced a cloud computing deal with Google Cloud estimated in the "tens of billions" of dollars. This is interesting because Anthropic is also using Amazon Web Services to train its leading models.

But Anthropic may need all the compute it can get. Earlier in October, Reuters reported that Anthropic sees its annualized revenue run-rate hitting $9 billion by the end of this year, and potentially tripling to $26 billion next year. Just this week, The Information reported the company projects as much as $70 billion in revenue by 2028.

So, it appears Alphabet is executing well on many fronts -- in its core Search AI business, in Cloud, and on several next-generation technologies.

Alphabet still looks attractive

Alphabet had trailed some of the other "Magnificent Seven" stocks early in the AI revolution, as investors feared the rise of chatbots might harm Alphabet's core Search business. However, Alphabet's stellar product execution and the reacceleration of Search paid clicks this year have enabled a 50% gain for the stock thus far in 2025.

Yet even with that outperformance, shares only trade at 28 times trailing earnings. That's hardly demanding for a stock that could become one of the major AI leaders, with multiple ways to win.

Billy Duberstein and/or his clients have positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.