Advertising Revenue Powers Alphabet's Earnings, but Here's Why You'll Really Want to Buy the Stock Now

Alphabet (GOOG -0.19%) (GOOGL -0.17%) has been an excellent growth stock for long-term investors. The shares have soared more than 500% over the past decade, as earnings and revenue climbed into the billions of dollars.

All this is due to Alphabet's dominance in something that most of us use every day -- internet search. Alphabet's Google has steadily held about 90% of that market over time, and this position, along with ongoing improvement in its capabilities and brand strength, make it a very difficult-to-unseat leader.

All of this has helped the company build a booming advertising business. Advertisers, trying to reach us where they know they'll find us, rush to Google to promote their products and services. And today, advertising makes up the lion's share of Alpabet's revenue. For example, it represented about 75% in the most recent quarter.

So the strength of Google Search is a reason to take a closer look at Alphabet. However, if you're an investor focused on growth, here's why you'll really want to buy this top stock now.

Using artificial intelligence (AI) to make Google Search better

First, before delving into this exciting source of growth, let's take a closer look at the Alphabet story so far. As mentioned, the company is known for its dominance in search, and the great news is this strength is likely to continue.

Alphabet has been heavily investing in artificial intelligence (AI), something it is applying to its search platform to help users generate better results faster. For example, AI Overviews offers users a preview of a topic, including links to find out more, and Alphabet recently rolled it out in 100 new countries.

The company's focus on AI also is helping advertisers in many ways. Alphabet's AI, powered by large language model Gemini, helps deliver ads to the most relevant audiences and is helping advertisers create better and potentially more successful campaigns.

All of this suggests growth from the search business could not only continue, but even see a big boost as a better-than-ever Google Search attracts more and more users -- and prompts advertisers to spend more to reach them. For the moment, though, Google's advertising business has averaged about 11% revenue growth over the past three quarters.

Of course, it's important to keep in mind that Alphabet's search business does face a risk. U.S. regulators recently presented closing arguments in an antitrust case against the tech giant. They're asking a federal judge to break up Google, which could include the sale of the Chrome web browser. It's impossible to predict with 100% certainty how this will turn out, but Alphabet clearly would appeal a potentially unfavorable decision -- a move that would push a new decision farther into the future.

Beyond the possibility of a delay, another positive point for Alphabet investors is the idea that major tech breakup orders haven't happened easily in the past. For example, about 25 years ago, a federal appeals court overturned a breakup ruling concerning Microsoft.

All of this makes me more optimistic than pessimistic about Alphabet's long-term prospects.

A new phase of growth from this established player

Now let's consider another Alphabet business -- one that has roared ahead when it comes to revenue power. And this is the business that will make you want to get in on this established company's new phase of growth. I'm talking about Google Cloud, Alphabet's cloud computing unit. The business generated a 35% increase in revenue in the recent quarter after already reporting a 29% revenue increase in the previous quarter.

Google Cloud also is outpacing cloud rivals, such as the world's biggest cloud provider, Amazon Web Services (AWS), when it comes to growth. Amazon reported a 19% increase in AWS revenue in the recent quarter, and Microsoft's Azure and other cloud services revenue gained 33%.

Google Cloud's revenue topped $11 billion in the third quarter after revenue and operating income reached the major milestones of more than $10 billion and $1 billion, respectively, in the second quarter. And Google Cloud is showing strong profitability on sales, with an operating margin of 17%.

There's reason to be optimistic about Google Cloud keeping up this momentum, as Alphabet's investments in AI have resulted in more and more AI products and services offered through the business. Alphabet says customers are using Google Cloud's AI in several different ways, such as harnessing AI infrastructure, like chips, or using the enterprise software platform to customize AI models. In the recent earnings report, Alphabet said this has helped Google Cloud win new customers and bigger deals and drive a 30% increase in product adoption among current customers.

The AI market is forecast to grow from about $200 billion today to $1 trillion by the end of the decade, and Google Cloud is well positioned to benefit. On top of this, Alphabet shares trade for a bargain price, at about 21x forward earnings estimates.

All of this means right now is a great time to invest in this top technology company -- for the new wave of growth that's getting started in the cloud business.