Alphabet Earnings: Let's Google; Search Strength and Cloud Momentum Drive FVE Upgrade

"Alphabet's execution on artificial intelligence, evidenced by strong traction for its Gemini app, which has more than 650 million monthly users, along with its ability to deliver solid advertising revenue, continues to drive results while refuting the AI-led disruption narrative. Within search, we like AI Overviews and AI Mode as tools that not only retain users but also drive incremental query growth and improved user engagement."

"We are raising our fair value estimate for wide-moat Alphabet to $340 from $300 following the firm's quarterly results, which blew past our expectations. The 79% growth in the firm's Google Cloud backlog, up from 37% last quarter, points to an inflection in cloud demand coming in 2026. Based on the massive increase in Google Cloud's backlog, we are raising our Google Cloud five-year growth to 34%, up from 30% in our prior forecast. This increase is the key driver behind our fair value increase."

Alphabet reported third-quarter sales of $102 billion, up 16%, and adjusted operating margins expanded 160 basis points to 34%. Google Cloud grew 34% and accounted for 15% of total sales, with a 79% backlog increase signaling stronger cloud demand toward 2026. Gemini exceeds 650 million monthly users, and AI Overviews and AI Mode are driving higher query growth, improved engagement, and expanded ad inventory. Agent-driven browsing and control of Chrome's multibillion-user base could enable agentic commerce and a new high-margin revenue stream. The fair value estimate increased to $340 from $300, and Google Cloud five-year growth was raised to 34%.

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