Is Alphabet Poised to Outperform NVIDIA in 2025? A Deep Dive into the Tech Giants

Alphabet’s Diverse Business Segments Drive Growth

Alphabet, the parent company of Google, operates across multiple business segments, providing it with a robust revenue foundation. Approximately 75% of Alphabet’s revenue comes from advertising, a sector that continues to grow despite concerns about the rise of generative AI and its impact on traditional search engines. Investors worried about Google’s search engine becoming obsolete have yet to see any evidence of this. Instead, Google is adapting to these changes and is well-positioned to replicate successful competitor products quickly.

In the third quarter, Alphabet reported a year-over-year increase of 12.3% in Google search revenue. This growth showcases the strength of a mature business sector, allowing Alphabet to leverage its advertising revenue to support other ventures.

Google Cloud’s Exceptional Performance

One of the standout segments for Alphabet has been its Google Cloud division, which recorded a remarkable 35% increase in revenue year-over-year in its latest quarterly report, accompanied by an impressive 17% operating margin. This growth marks a significant increase from previous quarters, where revenue growth was 29% in Q2 and 28% in Q1. Alphabet’s management credits its unique generative AI toolkit for this success, which offers developers unprecedented access to powerful tools.

Although Google Cloud currently accounts for only about 13% of Alphabet’s overall business, its growth is noteworthy, contributing to a total revenue increase of 15% year-over-year. This surge has allowed Alphabet’s earnings per share (EPS) to rise from $1.55 to $2.12—a significant 37% increase.

Investors responded positively to these results, leading to a rise in Alphabet’s stock price. However, when comparing these figures to NVIDIA’s performance, it’s clear that Alphabet still has ground to cover.

Alphabet’s Earnings Multiple Suggests Room for Growth

Currently, Alphabet trades at a forward earnings multiple of just 22, compared to NVIDIA’s lofty 49. This discrepancy indicates that while NVIDIA’s stock may be perceived as premium, Alphabet presents a more affordable investment opportunity. In fact, Alphabet’s valuation is lower than the S&P 500, which trades at around 24 times forward earnings.

When compared to other major tech players, Alphabet appears to be quite undervalued. For instance, Microsoft’s stock trades at 31 times forward earnings despite only a 10% increase in EPS for the first quarter of fiscal year 2025. Similarly, Apple, after reporting a 16% EPS growth in its best quarter since early 2022, still trades at 30 times forward earnings.

The market seems to undervalue Alphabet, which doesn’t align with the company’s impressive EPS growth, especially when compared to the average company in the index.

Slowing Growth for NVIDIA

While NVIDIA’s growth has been extraordinary, it is projected to slow down in the coming year. Analysts expect NVIDIA’s EPS to increase by about 43% in fiscal year 2026, suggesting that the company’s rapid expansion may be nearing its peak. This anticipated slowdown, coupled with Alphabet’s upward trajectory in earnings multiples, could position Alphabet for a stronger performance relative to NVIDIA by 2025.

In summary, while Alphabet may not grow as quickly as NVIDIA in the immediate future, its increasing earnings multiples and NVIDIA’s potential slowdown could create a scenario where Alphabet outshines NVIDIA in performance in 2025. With its diverse revenue streams and solid growth metrics, Alphabet remains one of the best values in today’s market and an attractive stock to consider.