"Why it matters: Alphabet's execution on artificial intelligenceevidenced by strong traction for its Gemini app, which has more than 650 million monthly users, along with its ability to deliver solid advertising revenuecontinues to drive results while refuting the AI-led disruption narrative. Within search, we like AI Overviews and AI Mode as tools that not only retain users but also drive incremental query growth and improved user engagement."
"With higher query growth driven by these AI features, Alphabet can increase its ad inventory, lifting sales in the process. Also, as agent-driven web browsing takes off, having access to and control over Chrome's multibillion-user base will be crucial, as agentic commerce features could allow Alphabet to command a hefty take rate on agent-led commerce activity, unlocking a new growth vector."
"The bottom line: We are raising our fair value estimate for wide-moat Alphabet to $340 from $300 following the firm's quarterly results, which blew past our expectations. The 79% growth in the firm's Google Cloud backlog, up from 37% last quarter, points to an inflection in cloud demand coming in 2026. Based on the massive increase in Google Cloud's backlog, we are raising our Google Cloud five-year growth to 34%, up from 30% in our prior forecast."
Alphabet reported third-quarter sales of $102 billion, up 16%, with adjusted operating margins expanding 160 basis points to 34%. Google Cloud accelerated to 34% growth and represented 15% of total sales while its backlog grew 79%, signaling an expected cloud demand inflection in 2026. The Gemini app surpassed 650 million monthly users and AI features such as AI Overviews and AI Mode are increasing query growth and user engagement, expanding ad inventory. Control of Chrome's multibillion-user base could enable agentic commerce take rates. The firm raised its fair value estimate to $340 and increased Google Cloud five-year growth to 34%.
Read at global.morningstar.com
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