Alphabet’s Growth Potential: Could Shares Reach $270 by 2025?

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) currently trades at $196 per share. However, Morgan Stanley analysts, led by Brian Nowak, have outlined a positive scenario where the stock could rise 38% to $270 per share by 2025. This growth hinges on strong revenue from Alphabet’s advertising and cloud computing divisions.

A price increase to $270 would elevate Alphabet’s market value to $3.3 trillion. This would place the company among an elite group, joining Apple at $3.9 trillion, Nvidia at $3.4 trillion, and Microsoft at $3.3 trillion. Read on for insights about this promising artificial intelligence stock.

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Rapid Growth in Advertising and Cloud Services Using AI

Alphabet’s subsidiary, Google, is experiencing growth in two major areas: digital advertising and cloud computing. Both sectors are expected to expand rapidly. Specifically, eMarketer forecasts digital advertising spending will grow at an annual rate of 10% through 2028. Meanwhile, the International Data Corporation (IDC) estimates public cloud services spending will rise at 19% annually over the same period.

In 2024, Google’s advertising revenue is projected to reach $188 billion, capturing about 20% of global digital ad spending. The company is expected to maintain this market share in the following years. eMarketer anticipates advertising revenue will reach $220 billion in 2026, again representing 20% of a projected $1.1 trillion in digital ad spending.

A significant factor in Google’s dominance in digital advertising is its capability to gather data and target content effectively across platforms like Google Search and YouTube. The company is investing in artificial intelligence (AI) to enhance user experience on these platforms. CEO Sundar Pichai noted that the introduction of generative AI features in Google Search has boosted usage and customer satisfaction.

Moreover, new advertising technology tools utilizing generative AI or machine learning are helping businesses create media and plan advertising with greater efficiency. Such innovations could help Google maintain its position against competitors like Amazon and Walmart, as well as emerging challengers like OpenAI.

On the cloud services front, Google Cloud accounted for 13% of cloud infrastructure spending in the third quarter, up from 12% the previous quarter and 11% a year prior. The company is recognized as a leader in AI infrastructure and foundational large language models, contributing to an increase in market share.

During a recent earnings call, Sundar Pichai highlighted, “Our technology leadership and AI portfolio are helping us attract new customers, win larger deals, and drive 30% deeper product adoption with existing customers.” This positive momentum could allow Google to secure even more market share in coming quarters, especially with its ongoing improvements to the Gemini model.

Image source: Getty Images.

Long-Term Outlook: Alphabet Shares and Potential Challenges

The optimistic price target of $270 per share from Morgan Stanley is based on a discounted cash flow model that predicts a 17% revenue increase in 2024, with further growth rates of 14% annually through 2027. While this is a reasonable expectation given market predictions, several factors must align for this to occur.

Despite uncertainties, Alphabet still represents an attractive investment opportunity leading up to 2025. The current stock trades at 26 times earnings, which is quite reasonable for a company projected to experience earnings growth of 16.5% annually over the next three years. With AI advancements supporting its performance in digital advertising and public cloud services, Alphabet might exceed these growth expectations.

Additionally, Alphabet faces pivotal regulatory issues. Federal Judge Amit Mehta earlier determined that the company had acted illegally to maintain its monopoly in internet search. A ruling on how to address this antitrust issue is expected in August 2025.

The Justice Department has requested that Alphabet divest its Chrome browser, a move that would significantly impact its market share in internet search. However, historical patterns suggest that a breakup is unlikely. Improved clarity regarding these regulatory matters may enable investors to value the stock more favorably.

In summary, Alphabet shares are already priced reasonably. The potential for AI-driven gains in cloud computing and the resolution of certain regulatory challenges could make this stock a strong option for long-term investors.

Should You Invest $1,000 in Alphabet Right Now?

Before making an investment in Alphabet, consider the following:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.