Is Alphabet Stock a Buy Before Feb. 4?
Key Points
Alphabet has strengthened its search offering with AI-powered experiences.
The company is also focusing on monetizing the Gemini family of large language models.
Google Cloud enjoys exceptional revenue visibility.
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Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is set to report its fourth-quarter 2025 earnings results on Feb. 4. Shares of the company have soared by more than 68% in the past year. But is the company a buy as we head into its upcoming earnings?
Dominance in online search
Alphabet has successfully eased investor fears about artificial intelligence (AI)-powered chatbots cannibalizing Google Search.
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In the third quarter of 2025, Google Search revenue was up nearly 15% year over year to around $56.6 billion. The company's AI search experiences, such as AI Overviews and AI Mode, are expanding search usage. Younger people, in particular, are extensively using AI Overviews to seek answers to their questions. AI Mode, a conversational search assistant, is also scaling rapidly and has over 75 million daily active users after a rapid rollout across 40 languages. Alphabet also rolled out AI Max in September 2025, to help advertisers determine the most relevant ad surface and discover new use cases and customers to target with their products and services.
These AI-powered upgrades are making Google Search more engaging, which can translate into higher digital advertising conversions and new monetization opportunities for the company.
Image source: Getty Images.
Gemini large language models
Alphabet is also working to monetize its Gemini large language models at an exceptional pace. Gemini models are already embedded in Google Workspace and Google Cloud. This month, Apple (NASDAQ: AAPL) entered a multiyear deal with the company to use its Gemini models in the revamped Siri virtual assistant, expected to be launched in late 2026. Subsequently, Alphabet will be earning a new licensing revenue stream from Apple's large installed base of more than 2 billion devices.
Google Cloud and YouTube
Google Cloud is a significant growth engine, and reported 34% year-over-year revenue growth to $15.2 billion in the third quarter. Google Cloud backlog also rose 82% to $155 billion at the end of the third quarter, providing the business with impressive revenue visibility. Morgan Stanley analyst Brian Nowak projects Google Cloud revenue of roughly $58 billion in 2025. Additionally, he has assigned 44% year-over-year revenue growth for Google Cloud in 2026 as the base case, while the bull-case revenue growth scenario of 50% is achievable if more large-scale cloud deals are signed.
YouTube has been the dominant streaming player in the U.S. based on watch time for the past couple of years. The media platform has further strengthened its competitive moat by signing a multiyear content partnership with the BBC. This deal will expand BBC's content distribution on YouTube, while also strengthening YouTube's position in global markets. YouTube also marked its first time as a live NFL broadcaster with more than 19 million viewers in September 2025. YouTube earns revenue not only from digital ads but also from subscriptions.
Coupled with its broad, diversified business, the company also boasts a strong balance sheet, with roughly $98.5 billion in cash at the end of the third quarter.
Risks and valuation
Investing in Alphabet is not without risks. The company is subject to heightened legal scrutiny in the U.S. after a federal judge ruled in January 2026 that Google must face a consumer antitrust lawsuit alleging illegal dominance in the online search market.
Alphabet has estimated its 2025 capital investment to be in the range of $91 billion to $93 billion, and even higher in 2026. While the company is investing heavily in data center capacity, this could compress free cash flow in the near term if AI monetization lags.
Alphabet is currently trading at 30 times forward earnings estimates, which appears steep. However, with the company's improving strength across search, cloud, and premium video, the rich valuation seems justified. While definitely not an exceptional entry point, investors should consider picking up a small stake in the stock ahead of the earnings. The chances of a strong earnings result are high, and the stock may witness significant gains in the coming months.
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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.
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