I have been following Google-parent Alphabet’s (GOOGL, Financial) stock for some time now, and a big focus of my research has been how the tech giant tilted the search warsin its favor by leveraging AI.
That trend was clearly on display in its Q3 earnings smasher, as Gemini was pretty much front and center.
CEO Sundar Pichai kept gushing over Gemini and its evolution into the engine that’s powering Google’s unmatched flywheel. Gemini is effectively powering 300 million paid subscriptions, along with a whopping $155 billion cloud backlogdriven by AI demand.
Gemini is rocking, but for me, the more encouraging bit is Google’s unsung initiatives in custom AI hardware and next-gen computing. A big part of that push is Google’s new Ironwood Tensor Processing Unit, a 7th-generation AI chip that leaves its predecessor in the dust, delivering 4 times the performance, while aiming directly at Nvidia’s (NVDA, Financial) GPU hold.
At the same time, Google just showed off a major quantum computing breakthrough, where its mind-boggling Willow quantum chip completed a task 13,000 times quicker than a classical supercomputer.
These breakthroughs come at a point where Alphabet’s core businesses continue to surge.
In Q3, Google Cloud sales skyrocketed 34% to a head-turning $15 billion, and overall quarterly revenues jumped to $100 billion for the first time.
With all that, Google stock has surged over 47% year-to-date, but given the arguments, I feel it still has more room to run before investors start crying overpriced.
Alphabet Stock Still Has Room To Run On AI Silicon, Quantum Edge
Source: Google TPU Chip (Tom’s Hardware)
Google’s Ironwood TPU chip has been hogging the spotlight of late, as it moves toward broader availability. The Ironwood is a critical piece of Google’s end-to-end AI infrastructure backbone, tailor-made for training and running AI models at breakneck speed.
For more color, it offers up to 10x performance gains, coupled with superior cost efficiency compared to previous TPUs.
It does so by connecting thousands of these robust chips in clusters, laying the foundation for AI supercomputing pods for its cloud clients. In essence, Google isn’t just owning the cloud platform but also owns the AI silicon.
Recently, CEO Sundar Pichai hailed AI infrastructure demand as one of the key drivers of Google’s expansion, underscoring the potential of Ironwood in differentiating Google Cloud from its competition. Additionally, the numbers support this, as Ironwood is already securing major clients.
For instance, Amazon (AMZN, Financial)-backed AI startup Anthropic inked a deal that grants it access to up to 1 million of these TPU chips to power its powerful Claude models.
Also, Google Cloud scored a massive new six-year,$10 billion deal with Meta Platforms(META, Financial) inhosting the latter’s AI workloads, not long after partnering with OpenAI in securing extra cloud capacity.
Reports also show that Apple may lean on Google’s AI prowess to finally give Siri a facelift with a next-gen Gemini AI model.
These marquee wins are one of the big reasons why Google Cloud sales rocketed in Q3, reaching $15.2 billion (up 34% year-on-year) with its backlog surging to $155 billion in committed orders.
Additionally, Alphabet signed over $1 billion in cloud contracts in the first nine months of 2025, surpassing the combined total of the two previous years.
Alphabet Stock Still Has Room To Run On AI Silicon, Quantum Edge
Source: Willow Chip (The Keyword)
Another major long-term catalyst for Google isn’t AI, but rather what lies ahead with quantum computing, which could potentially flip the script in the technology space over the coming decade.
Most recently, Google announced it hit a quantum milestone that feels straight out of sci-fi. Its new Willow quantum chip ran a test that came out 13,000 times faster compared to the world’s best supercomputer.
From being marketing hype, that’s a genuine quantum advantage moment. Sure, real-world use cases are still years away, but this breakthrough suggests that Google’s quantum hardware is finally kicking into high gear while getting a major head start on everyone else.
Other players aren’t sitting quietly either.
IBM (IBM, Financial), for instance, recently showed off a powerful 433-qubit chip, looking to go past the 1,000-qubit mark by 2026, leveraging hybrid quantum-classical systems.
On the flipside, IonQ (IONQ, Financial) is betting on trapped-ion technology, claiming 99.9% fidelity on a 36-qubit system, but still grapples with scalability troubles.
Microsoft (MSFT, Financial) is targeting topological qubits, which is a riskier approach but apparently a more stable route.
Meanwhile, pure-play firms like Rigetti (RGTI, Financial) and D-Wave (QUBTS) have all done remarkably well on the stock market but remain deep in R&D, experimenting with different architectures.
Google’s edge is that it can pour a ton of resources into quantum research without having to worry about short-term payback. That means that whenever quantum computers become viable for the tech industry, Google’s early investment may give it a leading platform.
Alphabet stock has been on a killer run over the past year, surging more than 84% in the past six months alone.
The result is that the stock’s now trading almost 27 times forward GAAP earnings (53% higher than the sector median), and almost 7% higher than its 5-year average. On a cash flow basis, things get even pricier, with stock trading at 21.3 times forward cash flows, 182% higher than the sector median.
With those numbers, it’s not surprising that some would feel that Alphabet’s AI prowess may be fully priced in. Any misstep or a slowdown in Google Cloud’s expansion or lower-than-expected AI profits may complicate things, which is why it’s imperative to reassess exposure.
Another argument is that Google’s incredible infrastructure spending is likely to weigh down on future free cash flows. For perspective, capex has ballooned to roughly 50% of operating cash flow as Google goes all-in on its AI endeavors, and the expansion of future cash flows is dependent on those investments paying off.
Alphabet Stock Still Has Room To Run On AI Silicon, Quantum Edge
Nevertheless, Analysts’ consensus still points to solid upside, roughly 9.65%, while the more optimistic targets indicate potential gains of 25% or more.
Alphabet Stock Still Has Room To Run On AI Silicon, Quantum Edge
Source: Author generated based on historical data
Furthermore, from the above chart, we can see that Alphabet’s earnings are expected to rise steadily, while its PE ratio will compress over time.
EPS is expected to rise from $10.48 in 2025 to $12.77 by 2027, and then skyrocket to $14.54 by 2028.
That’s exceptional growth, and as earnings compound, the forward PE is expected to
compress from roughly 26.6x in 2025 to below 20x by 2028, with greater returns coming from pure EPS expansion.
Hence, if AI-driven sales continue to climb, today’s valuation multiples will likely moderate. Overall, I believe that Google’s robust leadership and execution give it a superb foundation, delivering healthy returns, but not at the bargain valuation it once had.
Though I still feel that Google stock has more room to run, there’s no denying that there are multiple reasons for things to go the other way.
For starters, at current levels, Alphabet’s stock is pricing in a lot of success.
That means if there are any stumbles in AI or cloud expansion, that could potentially trigger a sharp pullback as investors recalibrate expectations.
On top of that, scaling AI isn’t just linked to chips; it requires infrastructure, which entails energy and facilities.
Microsoft’s CEO, Satya Nadella, came out this week warning that a shortage of data-center power is perhaps a bigger roadblock than processors. In a light-hearted exchange, he pointed out that several GPUs are sitting idle because there isn’t enough energy to power them up.
If Google is unable to grow the infrastructure in tandem, then it might not be able to fully capture AI demand, and cloud margins will likely suffer.
Google is at the forefront of the AI revolution, leveraging its innovations in custom silicon and quantum computing to drive the next leg of expansion for its business.
These competitive edges have fueled a superb run in the stock, but the rally essentially means that expectations are high, and any stumble along the way will test investor confidence.
Nevertheless, Alphabet’s robust AI ecosystem, covering hardware, software, and its potent user platforms, positions it enviably as one of the prime beneficiaries of the AI era.
