Knowing reasons why an investment could fail is just as important as knowing why it could succeed. This is vital for investing in a company like Alphabet (GOOG -1.16%) (GOOGL -1.11%), as it is displaying two contrasting signals to investors.
On one hand, its advertising business is steady, the cloud computing and artificial intelligence (AI) businesses are booming, and the stock is priced at a cheap level. On the other hand, the DOJ is seeking to break up Alphabet due to an illegal monopoly by forcing the sale of its Google Chrome browser. So, which factors should investors be more worried about?
Red flag: Alphabet is in the DOJ’s sights
The Department of Justice (DOJ) has long been on Alphabet’s tail, but it has finally caught it. After a judge ruled that Google (an Alphabet subsidiary) has engaged in an illegal monopoly, the DOJ is pushing the judge to force the sale of Google Chrome. The judge hasn’t decided what to do yet, but regardless, this decision may take years to enact.
Alphabet can still appeal to the Supreme Court, which can take a while to get on the docket. As a result, this dark cloud will be hanging over Alphabet’s head for a while, but it’s likely already developing remedies for what it would do should it lose access to Google Chrome.
Microsoft‘s antitrust case in the early 2000s is the best example of how long this might take. A judge first ruled Microsoft engaged in an illegal monopoly in April 2000 and ordered a breakup in June 2000. However, an appeals court ruled against that decision in June 2001, and a remedy to the settlement wasn’t approved until June 2004.
With that timeline in mind, Alphabet still has a long way to go before finding out the final outcome of this lawsuit, so investors shouldn’t make rash decisions to get out of the stock right now.
As a result, I think this “red flag” is more of a distraction than a signal for 2025.
Green flag: Google Cloud and AI are booming
If you only looked at Alphabet’s financial results, you’d think the stock would be up more than it is. In Q3, revenue was up 15% year over year, and earnings per share (EPS) rose from $1.55 to $2.12 — a 37% rise. Those are solid results for Alphabet, and they were powered by the boom in its cloud computing wing.
Thanks to its wide arsenal of AI tools, Google Cloud has become a popular option for companies. One of the biggest drivers is that Google Cloud gives clients access to leading GPUs and its in-house TPUs (tensor processing units). The TPU can far outperform the GPU when workloads are properly configured, significantly reducing AI training costs and time. For many companies, using a service like Google Cloud is a more cost-effective way of developing AI models, which has resulted in its popularity.
In Q3, Google Cloud’s revenue rose 35% year over year, an acceleration from Q2’s 29% growth and Q1’s 28% growth. As this segment expands and reaches operating scale, it can greatly affect Alphabet’s overall financial picture, making it one of its most important business segments.
Thanks to the cloud of the DOJ investigation, you can pick up Alphabet shares for a fairly reasonable price right now. At around 24 times forward earnings, it’s far cheaper than many of the big tech stocks it’s often compared with.
GOOGL PE Ratio (Forward) data by YCharts
An easy comparison for Alphabet would be its fellow “Magnificent Seven” counterparts. These stocks make up the bulk of the big tech space, and are great comparisons for relative valuation.
| Company | Forward P/E |
|---|---|
| Alphabet | 24 |
| Apple | 34 |
| Nvidia | 47 |
| Microsoft | 34 |
| Amazon | 45 |
| Meta Platforms | 28 |
| Tesla | 168 |
Data source: YCharts.
Alphabet is the cheapest of this group by a fair amount, yet is doing just as well (if not better) than some of its counterparts.
With that in mind, I think the bull case far outweighs the bear case, and investors should take the opportunity to purchase Alphabet shares. It’s poised to have another strong 2025 with the strength of its AI business, although the DOJ investigation still looms overhead.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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.
