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Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is best known for something many of us use daily: Google Search. The search engine, which steadily boasts a market share of 90%, is so popular that it's even entered our vocabulary: When we don't know the answer to a question, we often say, "let's Google it." And the entire market-leading Google platform has been Alphabet's ticket to growing revenue over time.
Meanwhile, in recent years, the company has also benefited from a fresh growth driver, and that's artificial intelligence (AI). Alphabet is one of the early winners in this space and is well-positioned to keep that momentum going. Now, with a catalyst ahead on Oct. 28, should you buy Alphabet shares before that date? Let's find out.
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So let's dive into the Alphabet story, starting with its Google Search business. As mentioned, the Google platform drives revenue, and this is through advertising. Advertisers, seeing how much time we spend on Google, are eager to place ads for their products and services here to reach us. This has helped Alphabet grow revenue and profit over time.
In the most recent quarter, Google advertising made up 68% of the company's total revenue of $119 billion.
Alphabet also generates significant revenue through its cloud computing business. Google Cloud is one of the world's biggest cloud services providers, and AI demand has supercharged growth. In the quarter, enterprise AI solutions and infrastructure drove an 82% increase in revenue to more than $24 billion. What's particularly compelling is that Alphabet offers customers access to a wide range of products and services from others, such as chip designer Nvidia -- and its own products like the large language model (LLM), Gemini.
Alphabet is scoring a win through Gemini in a few ways. The company itself is harnessing the power of this LLM to improve Google Search, with the idea that a better search experience will keep us using the tool longer -- and attract more advertising for Alphabet. We may also directly use Gemini, and here, Alphabet is seeing great success. In August, the Gemini app surpassed one billion monthly users, and this made it Alphabet's fastest-growing product ever. Finally, as mentioned, Google Cloud customers may access Gemini for their specific needs.
Alphabet, like its fellow cloud service providers, has spoken of enormous demand for AI capacity and has been heavily investing in the AI build-out. Though some investors have worried about this spending by Alphabet and peers such as Amazon and Meta Platforms, others argue that the AI story is in its early days and only beginning to address real-world problems. All of this suggests that considerable growth could lie ahead.
In the latest earnings call, Alphabet said that its increase in capital expenditure guidance for the year to as much as $205 billion "is primarily due to an acceleration in the delivery of capacity to meet growing demand."
Now, let's consider the catalyst on the horizon. On Oct. 28, Alphabet is scheduled to report third-quarter earnings.
Revenue may reach $127 billion, according to the average analyst estimate, representing a 25% gain year over year. As for free cash flow, Alphabet expects some pressure due to the company's ongoing spending on AI infrastructure. Finally, investors will also be listening closely to updates on demand, and here, there's reason to be optimistic, considering the strength we've seen in recent quarters.
With all of this in mind, should you buy Alphabet before Oct. 28? It's difficult to predict whether investors will be excited about potential good news and rush to get in on the stock or turn away from the stock on concern about capex. But here's the good news: As long-term investors, it doesn't matter if we buy a stock before or after a specific event, and that's because, over time, any gain or loss on one particular day won't have much of an impact on our returns. All of this means Alphabet makes a solid buy -- before or after its next earnings report.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
Should You Buy Alphabet Before Oct. 28? was originally published by The Motley Fool
