Despite the strength and stability of Google parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), its direction over the next five years is far from certain.
The company has been in a gradual process of reducing the percentage of revenue it derives from advertising. It owns numerous other businesses that could potentially drive revenue growth for the tech giant, though nobody can guarantee if or how much such enterprises will succeed.
Thus, the question for investors is whether that uncertainty prevents the stock from becoming a buy over the next five years. Let’s take a closer look.
Investors likely struggle with Alphabet’s direction simply because it can go in so many directions. As a digital advertising pioneer, the company grew as it leveraged proficiency in search, ownership of YouTube, and artificial intelligence (AI) prowess to increase its revenue.
Unfortunately, amid OpenAI’s advancements in the field, Alphabet seems to suffer from a perception that it has fallen behind in the generative AI race. Many investors questioned whether AI would supplant Google Search, and the release of Gemini and its pledge to invest $75 billion in capital expenditures during 2025 alone may not have appeased more skeptical investors.
Moreover, Alphabet has gradually moved to become less dependent on advertising for revenue. Digital ads accounted for 76% of Alphabet’s revenue in 2024, down from 77% in 2023 and 79% in 2022.
That trend logically turns investors to revenue sources outside of advertising, and here, investors will likely find early signs of promise. Google Cloud now accounts for 11% of the company’s revenue, thanks in part to its 31% yearly revenue growth. Additionally, the colmpany owns businesses such as Waymo that do not show up in its quarterly reports but could stand out in the future as its business earns more revenue.
In fact, it owns so many of these businesses that investors should wonder whether Alphabet will spin off some of these enterprises. Although such moves will not necessarily help Alphabet stock directly, shareholders could still benefit if they gain shares in additional companies.
Investors should also not count out Alphabet’s tremendous resources. It holds $96 billion in liquidity, and with its ability to generate revenue and profits, it can likely afford the capital expenditures needed to stay relevant in the AI race.
In 2024, revenue of $350 billion rose 14% from year-ago levels. Aside from Google Cloud’s considerable growth, advertising revenue increases remain in the double digits.
