Will Alphabet be worth more than Nvidia in 2025?

Alphabet‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Shares have risen more than 40% in the last 12 months and currently sit near their all-time high. The tech giant impressed investors with accelerated growth in its advertising and cloud businesses, a new $70 billion share buyback plan and the approval of its first dividend.

Those positive developments somewhat allayed investor concerns about Alphabet’s slower progress in the artificial intelligence (AI) market relative to its peers, but it is still overshadowed by NVIDIAwhich has rallied more than 210% in the past 12 months as market demand for its AI accelerator chips outstripped its ability to supply them.

Nvidia also surpassed Alphabet’s market capitalization for the first time this year. At the time of writing, Nvidia is worth $3.3 trillion, while Alphabet is worth $2.2 trillion. But could Alphabet accelerate and surpass Nvidia again by the end of 2025?

Has Alphabet overcome its near-term challenges?

Alphabet generates most of its revenue from Google’s advertising business, which includes its search and display ads, network ads, and YouTube. The rest of its revenue comes primarily from Google Cloud, the world’s third-largest cloud infrastructure platform, as well as Google’s subscriptions, platforms and devices division.

Alphabet’s revenue only rose 10% in 2022 as concerns about the macroeconomic outlook led many companies to rein in their marketing and cloud spending. The company also faced stiff competition from Metaplatforms and ByteDance in the advertising market, and seemed to fight against Amazon and microsoft in the cloud market. But over the past year, Alphabet’s three core businesses have bounced back.

Data source: Alphabet. YOY = Year after year.

Google’s advertising business rebounded as growing sales from YouTube and search-based ads offset falling ad network revenue. Its cloud growth accelerated as it launched more than a thousand new products and features, and continued to expand its Gemini generative AI platform.

Google’s subscriptions, platforms and devices segment also gained more subscribers. By the end of the first quarter of 2024, YouTube Premium and Music had reached 100 million subscribers worldwide, YouTube TV reached 8 million subscribers, and Google One surpassed 100 million subscribers. Those expansions should widen the company’s moat and reduce its reliance on advertising.

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The alphabet perspective

Alphabet could benefit from several tailwinds over the next three years. The macroeconomic environment could improve as the Federal Reserve lowers interest rates, which would likely lead to companies spending more money on their ads and cloud services again. The ban on TikTok in the US, which will take effect next January unless ByteDance sells its US subsidiary, could attract more users to YouTube.

But it also faces difficult challenges. It is struggling to make headway in the generative AI space, where its offerings are not as impressive as those from Microsoft and OpenAI. The next release of AppleGoogle’s generative AI ecosystem could reduce the amount of revenue Google makes from ads shown to Apple device users, even though Google pays Apple billions of dollars each year to remain its default search engine . Additionally, Alphabet still faces ongoing antitrust and privacy investigations in the United States, Europe and other regions.

From 2023 to 2026, analysts expect Alphabet’s revenue to grow at a CAGR of 11% as its EPS grows at a CAGR of 20%. Based on those estimates, which seem realistic relative to its past growth rates, its shares appear reasonably valued at 23 times forward earnings.

If Alphabet meets those expectations and trades at the same forward earnings multiple by the end of 2025, its share price would have risen 30% to about $228, boosting its market capitalization to $2.9 trillion, but that would still be up. below where Nvidia is today. . Nvidia is also likely to continue growing as the AI ​​chip market expands.

Let’s not compare apples with oranges

Alphabet and Nvidia are “Magnificent Seven” stocks, but they operate in different industries and have different business models. Alphabet is a major player in the cloud and digital advertising markets, while Nvidia is a leader in artificial intelligence and gaming GPUs. So instead of wondering whether Alphabet will become more valuable than Nvidia again, investors should focus on its macro, competitive and regulatory challenges. If you solve those problems, it should remain a solid long-term investment.

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Alphabet executive Suzanne Frey 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. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon, Apple and Meta Platforms. The Motley Fool ranks and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. 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.

Will Alphabet be worth more than Nvidia in 2025? was originally published by The Motley Fool