Alphabet's (GOOGL) (GOOG) Google aims to gain traction in the artificial intelligence race that extends beyond its search engine dominance and cloud services. While Nvidia (NVDA) has captured headlines as the undisputed leader in AI chips, with its $4.5 trillion market valuation, Google has been developing its own custom silicon for over a decade, which could reshape the cloud computing landscape. 

The internet giant recently announced Ironwood, the seventh generation of its Tensor Processing Unit (TPU), claiming performance that is more than four times faster than its predecessor while handling the heaviest AI workloads, from training large models to powering real-time chatbots and AI agents.

Unlike competitors Amazon (AMZN) and Microsoft (MSFT), who only recently entered the custom chip arena, Google has been deploying TPUs in huge volumes since making them available to cloud customers in 2018.

The application-specific integrated circuits offer critical efficiency advantages at a time when power consumption rather than chip supply appears poised to become the primary infrastructure bottleneck. 

A Strong Performance in Q3 of 2025

Alphabet delivered its first-ever $100 billion quarterly revenue milestone in Q3, posting consolidated revenue of $102.3 billion, representing 16% year-over-year (YoY) growth as artificial intelligence investments drove double-digit expansion across Search, YouTube advertising, subscriptions, and Google Cloud. 

The internet giant demonstrated strong operational momentum with revenue doubling over the past five years from $50 billion quarterly run rates, underscoring the company's successful transition into the generative AI era while diversifying beyond core search advertising into cloud computing, video streaming, and subscription services. Google Search and other advertising revenues surged 15% to $56.6 billion, with growth accelerating across all major verticals, led by retail and financial services. 

Management emphasized that AI innovations, including AI Overviews and AI Mode, are driving an expansionary moment for search, with overall query volume and commercial queries both increasing YoY at accelerating rates. 

The Gemini app now boasts over 650 million monthly active users, with queries increasing by a factor of three from the second quarter. AI Mode, recently launched globally across 40 languages, has already attracted 75 million daily active users while driving incremental total query growth for Search. Alphabet shipped over 100 product improvements to AI Mode during the quarter at a remarkably fast pace.

YouTube advertising revenue climbed 15% to $10.3 billion, driven by direct response, followed by brand advertising, with strength across all major verticals. The video platform maintained its position as the number one streaming service in U.S. living room watch time for over two years, while Shorts now generates more revenue per watch hour than traditional in-stream advertising in the United States. 

Subscriptions, platforms, and devices revenue jumped 21% to $12.9 billion, fueled by strong growth in both YouTube Premium and Google One subscriptions as the company surpassed 300 million paid subscriptions.

Google Cloud delivered accelerating growth with revenue increasing 34% to $15.2 billion in the quarter, while operating margin expanded to 23.7% from 17.1% in the prior year period. 

The cloud backlog surged 46% sequentially and 82% YoY to reach $155 billion, driven primarily by strong demand for enterprise AI. Management revealed it signed more billion-dollar cloud deals through the first nine months of 2025 than in the previous two years combined, with over 70% of existing cloud customers now utilizing AI products. 

Revenue from products built on generative AI models grew over 200% YoY, with nearly 150 customers each processing approximately 1 trillion tokens over the past 12 months.

The company's custom Tensor Processing Unit portfolio, led by the seventh-generation Ironwood chip, continues winning customers as nine of the top 10 AI labs choose Google Cloud infrastructure. 

Alphabet recently announced a massive expansion of its partnership with Anthropic, valued in the tens of billions of dollars, with Google expected to bring well over a gigawatt of AI compute capacity online in 2026.

Is GOOGL Stock Still Undervalued?

Valued at a market cap of $3.37 trillion, GOOGL stock has risen over 50% over the last 12 months. Analysts tracking the tech giant forecast revenue to increase from $350 billion in 2024 to $631 billion in 2029. In this period, adjusted earnings are forecast to expand from $8.04 per share to $17.23 per share.

Currently, GOOGL stock is priced at a forward price-to-earnings (P/E) multiple of 26.3x, which is higher than its 10-year average of 23.8x. If Alphabet stock is priced at 23x forward earnings, it could gain over 42% within the next three years. 

Out of the 56 analysts tracking GOOGL stock, 42 recommend “Strong Buy,” five recommend “Moderate Buy,” and nine recommend “Hold.” The average GOOGL stock price target is $314, not far above the current price of $290.

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