Alphabet 2025: Key areas for investors to watch

Alphabet Inc. (GOOG) wrapped up a solid 2024, marked by robust financial performance and advancements across its core businesses. As we look ahead to 2025, the focus shifts to Alphabet’s next wave of product developments that could drive significant growth and further strengthen its market leadership.

Key areas to watch include the rollout of Gemini 2.0, advancements in generative AI, the re-entry into the VR/AR space with Android XR, and Waymo's international expansion. These initiatives highlight Alphabet’s commitment to innovation and its potential to unlock new revenue streams, making 2025 a pivotal year for the tech giant and its investors.

Alphabet is accelerating its innovation across generative AI, technical infrastructure, Android, and Waymo. Significant announcements include Gemini 2.0, a suite of AI-driven tools such as Jules (for developers), Mariner (human-agent interaction), and advancements in its quantum chip, Willow. These developments showcase Alphabet's leadership in emerging technologies and its potential to enhance its competitive position.

Waymo is expanding internationally, starting with Japan, through partnerships with local companies like Nihon Kotsu and GO. Additionally, Waymo is focusing on safety, with studies showing it outperforms human drivers in reducing liability claims. This positions Waymo as a leader in autonomous vehicle technology and highlights its potential growth in global markets.

Google is re-entering the VR/AR/XR space with Android XR, focusing on creating an ecosystem for next-generation computing devices. Additionally, Wing, Alphabet's drone delivery division, is scaling operations and could attract outside investment, further solidifying Alphabet's diversified innovation strategy.

The stock holds a reasonable valuation. If we place a price target at $230 by December 2025, then that represents a 22.5x multiple of 2026 earnings. Alphabet's valuation is considered undemanding relative to its growth prospects, with expected double-digit revenue and EPS growth, supported by a robust 30%+ operating margin.

Alphabet's core businesses, including Search, YouTube, and Google Cloud, are expected to benefit from AI-driven enhancements and shifts in advertising spend from TV to online platforms. Non-ad revenue streams, like subscription services, also provide significant growth opportunities.

The company is navigating a complex regulatory landscape, with a focus on resolving the DOJ's search distribution case. There are potential improvements in the regulatory environment under a new U.S. administration, which could reduce litigation risks and positively impact Alphabet's operations. However, we would note the new Administration has been critical of big cap tech.

Key risks include increased competition in AI, ads, and cloud services, as well as potential regulatory restrictions. However, Alphabet's strong innovation pipeline, cost-control measures, and diversified revenue streams position it well for sustained growth. Investors are also closely watching Alphabet's financial performance and potential updates to its share buyback program.