Alphabet is the parent of Google, a company with two important growth engines. First, Google is the largest adtech company in terms of revenue, and digital ad spending is expected to grow at 10% annually through 2028. Second, Google runs the third-largest public cloud, and cloud services spending is expected to grow by 19% annually over the same period, according to International Data Corp.

One of investors’ most pressing concerns is that Alphabet will lose its dominance in internet search as generative AI becomes more sophisticated. That would diminish its ability to engage consumers and source data, which would hurt its advertising business. But Alphabet is using AI expertise cultivated over decades to tackle the problem.

For instance, the company recently added generative AI overviews to Google Search to help internet users understand topics more quickly. CEO Sundar Pichai says those enhancements are increasing usage and satisfaction, particularly among young adults. The company has also introduced AI tools that generate media content for advertising campaigns and tools that help brands target their advertising more effectively.

Beyond advertising, Google is capitalizing on the demand for AI cloud computing services. Forrester Research recently recognized the company as a leader in AI infrastructure solutions and foundational large language models. Strength in those areas helped Google gain a percentage point of market share in the third quarter, according to Synergy Research Group. Meanwhile, Amazon and Microsoft lost share.

Alphabet reported encouraging financial results in the third quarter, beating expectations on the top and bottom lines. Revenue rose 15% to $88 billion, marking a sequential acceleration from 14% in the preceding quarter. Meanwhile, GAAP earnings increased 37% to $2.12 per diluted share, reflecting operating margin expansion of four percentage points.

Going forward, Wall Street expects Alphabet’s earnings to increase 20% over the next 12 months. That makes the current valuation of 24 times earnings look quite reasonable. Investors should feel comfortable buying a small position in this stock today.

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Suzanne 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. Trevor Jennewine has positions in Amazon and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Palantir Stock vs. Alphabet Stock: Billionaire Ken Griffin Sells One and Buys the Other was originally published by The Motley Fool