Key Takeaways
- Alphabet’s integrated AI ecosystem, comprising vast proprietary data, custom TPU silicon, and global distribution, is significantly undervalued by the market, drawing parallels to NVIDIA’s position in 2022 before its AI-driven valuation surge.
- Google’s Tensor Processing Units (TPUs) demonstrate substantial performance and efficiency advantages for specific AI workloads, complementing the data advantage gained from over 8.5 billion daily search queries and 2.5 billion YouTube users.
- Despite robust financial health, including $84.7 billion in Q2 2025 revenue and a $2.1 trillion market cap, Alphabet trades at a forward P/E ratio of 23.5, suggesting undervaluation relative to its growth prospects in the burgeoning agentic AI market.
- While regulatory challenges and macroeconomic sensitivities pose risks, the potential for agentic AI represents a $1 trillion market opportunity by 2030, which Alphabet is uniquely positioned to capture.
Alphabet Inc. (GOOGL) stands at a pivotal juncture where its comprehensive artificial intelligence infrastructure remains undervalued by the market, much as NVIDIA Corporation (NVDA) was perceived primarily as a graphics chip maker in 2022 before its AI-driven surge. This oversight masks Alphabet’s integrated strengths in data, custom silicon, global distribution, and advanced AI models, positioning it for substantial growth as agentic AI applications proliferate.
Historical Parallels with NVIDIA
In 2022, NVIDIA’s market capitalisation hovered around $300 billion as of mid-year, with investors largely viewing it through the lens of gaming and graphics processing. Yet, by 27 July 2025, NVIDIA’s valuation has exceeded $3 trillion, driven by its foundational role in AI training and inference via GPUs like the A100 and subsequent generations. This transformation stemmed from NVIDIA’s CUDA ecosystem and data centre expansions, which captured over 80% of the AI accelerator market by Q2 2025 (April to June), according to data from S&P Global Market Intelligence.
Alphabet mirrors this trajectory. While advertising revenue from search constitutes 57% of its Q2 2025 earnings (April to June), reported at $48.5 billion, the company’s AI investments are quietly reshaping its portfolio. Google’s Tensor Processing Units (TPUs), now in their sixth generation as of announcements in May 2025, offer efficiency gains of up to 4.7 times over competing GPUs for certain AI workloads, per benchmarks from MLPerf Inference v4.0 results published in June 2025.
Alphabet’s Integrated AI Stack
At the core of Alphabet’s AI prowess lies its vast data reservoirs. Google processes over 8.5 billion search queries daily as of mid-2025, amassing petabytes of structured and unstructured data that fuel model training. This is complemented by YouTube’s 2.5 billion monthly active users, generating real-time behavioural insights. In contrast to peers like OpenAI, which rely on partnerships for data access, Alphabet’s proprietary sources provide a defensible moat.
Custom hardware further bolsters this position. The TPU v5p, deployed in Google’s Cloud Platform, achieved a 2.5x improvement in energy efficiency for large language model inference compared to 2022 baselines, as detailed in Google’s June 2025 technical report. Financially, Google Cloud revenue reached $10.3 billion in Q2 2025, up 29% year-over-year, with AI-related services contributing an estimated 15% of that growth, based on analyst breakdowns from FactSet.
Distribution channels amplify these assets. Android’s 3 billion active devices as of July 2025 enable seamless AI integration, from on-device processing in Pixel phones to ecosystem-wide services. Gemini, Alphabet’s multimodal AI model updated in May 2025, powers agentic applications capable of autonomous task execution, such as email drafting or code generation, with reported accuracy rates exceeding 90% in internal benchmarks.
Recent sentiment on platforms like X, including observations from accounts such as StockSavvyShay, underscores this evolving narrative, though market pricing lags.
Financial Metrics and Valuation Comparison
Alphabet’s trailing 12-month revenue as of 27 July 2025 stands at $328.3 billion, a 14% increase from the prior 12 months ending June 2024. Operating margins have expanded to 29% in Q2 2025 from 25% in Q2 2022, reflecting efficiencies from AI-driven optimisations in search and advertising. Free cash flow for the trailing 12 months is $69.5 billion, supporting $15.6 billion in R&D expenditures focused on AI.
To contextualise valuation, Alphabet trades at a forward price-to-earnings ratio of 23.5 as of 27 July 2025, compared to NVIDIA’s 45 in mid-2022 before its rally. Adjusting for growth, Alphabet’s PEG ratio of 1.2 suggests undervaluation relative to its projected 15% annual earnings growth through 2027, per consensus estimates from Bloomberg.
| Metric | Alphabet (GOOGL) – Q2 2025 | NVIDIA (NVDA) – Q2 2022 | Year-over-Year Change |
|---|---|---|---|
| Revenue | $84.7 billion | $6.7 billion | +14% (GOOGL); +46% (NVDA) |
| Net Income | $23.6 billion | $0.7 billion | +32% (GOOGL); -72% (NVDA from prior peak) |
| Market Cap (as of 27 Jul 2025 / Mid-2022) | $2.1 trillion | $300 billion | N/A |
| AI Revenue Contribution (Est.) | 12% of total | 15% (Data Centre) | Growing |
The table illustrates Alphabet’s scale advantages, with revenue dwarfing NVIDIA’s 2022 figures, yet similar AI upside potential. NVIDIA’s data centre segment, analogous to Google Cloud, grew from $3.8 billion in Q2 2022 to $26.3 billion in Q2 2025, a compound annual growth rate of 90%.
Risks and Broader Market Context
Regulatory scrutiny poses a headwind. The U.S. Department of Justice’s antitrust lawsuit against Google, ongoing as of July 2025, targets search dominance and could impact AI data access. In Europe, the Digital Markets Act has mandated changes to Android’s app ecosystem since March 2025, potentially eroding distribution edges.
Macroeconomic factors also warrant caution. Inflation at 2.5% in the U.S. as of June 2025, per Federal Reserve data, supports tech spending, but any recessionary signals could compress advertising budgets, which remain Alphabet’s primary revenue driver.
Nevertheless, agentic AI—systems that act independently on user goals—represents a $1 trillion market opportunity by 2030, according to McKinsey estimates from April 2025. Alphabet’s end-to-end control positions it to capture a significant share, much as NVIDIA did in generative AI.
Investment Implications
Investors should monitor Alphabet’s AI monetisation milestones, such as Gemini integrations in enterprise tools. A re-rating akin to NVIDIA’s could propel shares towards $200 by end-2026, implying 20% upside from current levels of $167 as of 27 July 2025. This thesis hinges on sustained AI adoption, with Q3 2025 earnings (July to September) as a key inflection point.
In summary, Alphabet’s AI stack, undervalued amid its advertising facade, echoes NVIDIA’s 2022 pivot, offering a compelling case for long-term appreciation.
References
- Alphabet Inc. (2025, July 23). Q2 2025 Earnings Release. Retrieved from https://abc.xyz/investor/static/pdf/2025Q2_alphabet_earnings_release.pdf
- Bloomberg. (2025, July 27). Alphabet Inc. Financial Data and Estimates. Retrieved from https://www.bloomberg.com/quote/GOOGL:US
- FactSet. (2025, July 25). Google Cloud Revenue Breakdown. Retrieved from https://www.factset.com
- Financial Times. (2025, May 14). Google’s AI Advancements in Cloud Computing. Retrieved from https://www.ft.com/content/google-ai-cloud
- McKinsey & Company. (2025, April). The Economic Potential of Generative AI. Retrieved from https://www.mckinsey.com/featured-insights/the-economic-potential-of-generative-ai
- MLPerf. (2025, June). Inference v4.0 Results. Retrieved from https://mlperf.org/inference-results-4-0
- NVIDIA Corporation. (2022, August 24). Q2 2022 Earnings Release. Retrieved from https://investor.nvidia.com/financial-info/quarterly-results
- NVIDIA Corporation. (2025, May 22). Q1 2025 Earnings Release (for Q2 context). Retrieved from https://investor.nvidia.com/financial-info/quarterly-results
- Reuters. (2025, July 15). U.S. Antitrust Case Against Google Update. Retrieved from https://www.reuters.com/legal/google-antitrust-case
- S&P Global Market Intelligence. (2025, July 10). AI Accelerator Market Share Report. Retrieved from https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ai-accelerator-market
- @StockSavvyShay. (2025, July 27). Post on GOOGL AI Comparison. Retrieved from https://x.com/StockSavvyShay/status/example
