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Alphabet has staged an impressive recovery in recent months, bouncing more than 23% from its 52-week low in April and now down just 8% year-to-date. While the tech giant still trails many of its Magnificent Seven peers, the tide is slowly turning in its favor.
Although Alphabet has faced its share of scrutiny this year, whether from regulatory pressures, competitive threats from AI tools like ChatGPT, or evolving search and ad dynamics, it may be widely misunderstood by the public. While most still view it primarily as a search engine business, Alphabet’s (NASDAQ:GOOGL) strength now lies in its diversification across several high-growth verticals.
With strong momentum in cloud and digital advertising, and bold innovation bets still in play, investors may want to take a closer look at Alphabet before the market fully prices in its upside potential.
Google Services: The Heart of Alphabet’s Revenue Machine
Google Services remains the financial engine behind Alphabet, encompassing products such as Google Search, YouTube, Android, Gmail, Maps, and Google Play. This segment also includes productivity tools like Google Calendar, Docs, and Meet, as well as entertainment platforms like YouTube Music and Google Photos. The segment is anchored by Alphabet’s advertising business, which includes Google Ads, AdSense, and YouTube ads, all of which are critical contributors to overall revenue. Subscription services, such as YouTube Premium, and transactional revenues from the Play Store add even more depth.
In Q4 2024, Google Services generated $84.1 billion in revenue, representing a 10% year-over-year increase. Advertising revenue alone contributed $72.5 billion to Alphabet’s total Q4 revenue of $96.5 billion. This segment continues to benefit from global internet adoption, mobile usage, and digital video consumption, maintaining its status as the heartbeat of the company.
Google Cloud: The Rising Star
Google Cloud represents Alphabet’s aggressive move into enterprise services and digital infrastructure. It encompasses Google Cloud Platform (GCP), which offers computing, storage, AI, and analytics services, as well as Google Workspace, which includes Gmail, Docs, Sheets, and Drive, all tailored for business use. This segment directly competes with Amazon (NASDAQ:AMZN) Web Services and Microsoft (NASDAQ:MSFT) Azure.
Once considered Alphabet’s laggard, Google Cloud is now rapidly gaining ground. In Q1 2025, Google Cloud generated $12.26 billion in revenue, marking a 28% year-over-year increase. The previous two quarters saw 30% and 35% year-over-year revenue growth, respectively. Operating income surged 142% to $2.18 billion in the latest quarter, showing real signs of margin expansion and improving scalability.
Despite some growth constraints due to data center capacity, Alphabet has committed to investing $75 billion in expanding its data infrastructure. Currently, Google Cloud holds approximately 12% of the global cloud market, maintaining a solid third place behind Amazon Web Services (AWS) and Microsoft Azure. The outlook remains bullish, especially as more enterprises adopt AI-driven workloads.
Other Bets: The Moonshot Factory
Alphabet’s Other Bets division is where long-term innovation lives. This segment includes ambitious ventures such as Waymo (autonomous vehicles), Verily (life sciences and medical tech), Wing (drone delivery), and Google Fiber (broadband services). While not immediately profitable, these initiatives represent Alphabet’s commitment to addressing significant global challenges through innovative technology.
Historically, Other Bets has been a cash-burning operation. However, these investments are less about near-term returns and more about planting the seeds for future breakthroughs. If any of these bets become viable at scale, similar to what Google Search did in its early days, they could become foundational businesses in the future.
Although Other Bets posted an operating loss, it still generated revenue from Verily’s healthcare services and Google Fiber’s broadband offerings. It’s a high-risk, high-reward category that gives Alphabet optionality far beyond its current cash flows.