Will Alphabet Be Worth More Than Nvidia by 2025?

the alphabet's (NASDAQ:GOG) (Nasdaq: Google) The stock is up more than 40% over the past 12 months and is currently hovering near its all-time high. The tech giant has impressed investors with accelerated growth of its advertising and cloud businesses, a new $70 billion stock buyback plan, and the approval of its first-ever dividend.

These positive developments have somewhat allayed investors' concerns about Alphabet's slow progress in the field of artificial intelligence (Amnesty International) market compared to its peers, but it is still overshadowed Nvidiawhich has risen more than 210% over the past 12 months as market demand for AI accelerator chips outpaces its ability to supply them.

Nvidia also surpassed Alphabet's market cap for the first time this year. As of this writing, Nvidia is worth $3.3 trillion while Alphabet is worth $2.2 trillion. But can Alphabet accelerate and overtake Nvidia again by the end of 2025?

Has Alphabet overcome its near-term challenges?

Alphabet generates most of its revenue from Google's advertising business, which includes search and display advertising, network advertising, and YouTube. The rest of its revenue comes mainly from Google Cloud, the world's third-largest cloud infrastructure platform, as well as Google's Subscriptions, Platforms and Devices division.

Alphabet's revenue rose just 10% in 2022 as concerns about the macroeconomic outlook prompted many companies to rein in their marketing and cloud spending. The company also faced intense competition from Meta platforms And ByteDance is in the advertising market, and seems to be struggling Amazon And Microsoft In the cloud market. But over the past year, Alphabet's three core businesses have improved again.

Data source: alphabet. YOY = year after year.

Google's advertising business rebounded as higher YouTube and search-based advertising sales offset lower ad network revenue. Its cloud growth has accelerated as it has introduced more than a thousand new products and features, and continues to expand its Gemini Geneative AI platform.

Google's Subscriptions, Platforms and Devices segment is also attracting more subscribers. By the end of the first quarter of 2024, YouTube Premium and Music reached 100 million subscribers globally, YouTube TV reached 8 million subscribers, and Google One surpassed 100 million subscribers. These expansions would expand the company's moat and reduce its reliance on advertising.

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Alphabet look

Alphabet could benefit from several tailwinds over the next three years. The macroeconomic environment could improve as the Federal Reserve lowers interest rates, which will likely lead to companies spending more money on their advertising and cloud services again. the Ban Tik Tok In the US, which will take effect next January unless ByteDance sells its US subsidiary, it could attract more users to YouTube.

But it also faces difficult challenges. It's struggling to make headway in generative AI, where its offerings aren't as impressive as those of Microsoft and OpenAI. The upcoming launch of appleA generative AI system could reduce the amount of revenue Google makes from ads shown to users of Apple devices — even though Google pays Apple billions of dollars each year to remain its default search engine. Also, Alphabet still faces ongoing antitrust and privacy investigations in the US, Europe and other regions.

From 2023 to 2026, analysts expect Alphabet's revenue to grow at a CAGR of 11% with earnings per share increasing at a CAGR of 20%. Based on those estimates, which appear realistic relative to its past growth rates, its stock seems reasonably valued at about 23 times forward earnings.

If Alphabet meets those expectations and trades at the same forward earnings multiple at the end of 2025, its stock price would have risen 30% to about $228, boosting its market capitalization to $2.9 trillion — but that would still be below where Nvidia is today. . Nvidia is also likely to continue growing as the AI ​​chip market expands.

Let's not compare apples with oranges

Alphabet and Nvidia are both “Magnificent Seven” stocks, but they operate in different industries and have different business models. Alphabet is a leader in digital advertising and cloud markets, while Nvidia is a leader in artificial intelligence and gaming GPUs. So instead of wondering whether Alphabet will become more valuable than Nvidia again, investors should focus on the macro, competitive and regulatory challenges it faces. If you can solve these problems, it should remain a solid investment over the long term.

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Susan Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Liu Sun He has positions at Amazon, Apple, and Meta platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.

Will Alphabet be worth more than Nvidia by 2025? Originally published by The Motley Fool