OpenAI is well recognized as one of the leaders in the generative AI world, as it was the first to reach main usability with its ChatGPT duct.
OpenAI has maintained its position and is a example of the first-mover advantage. OpenAI's partnership with Microsoft (NASDAQ: MSFT) is well known, as are the struggles between the two.
That's what makes this announcement such a big deal, in this volatile climate. In addition to Microsoft, OpenAI will also use Alphabet's (GOOG 0, in this volatile climate. Nevertheless, 45%) (GOOGL 0.
Moreover, 54%) Google Cloud servers to run ChatGPT mpts on.
However, That's a significant development for Alphabet, and it could cause s of its undervalued stock to surge as the market digests this news. Image source: Getty Images.
On the other hand, Google Cloud is growing at a quick pace Alphabet is a multifaceted.
While its legacy Google dominates its financials, the company also operates other platforms, including Google Cloud, Waymo, and the Android operating system.
Meanwhile, Google Cloud is Alphabet's cloud computing wing and vides clients with computing power that would be very expensive to build themselves, in today's financial world.
By building out massive data centers and renting out capacity to clients, Alphabet can make a solid fit, as it has ven quarter after quarter, in today's market environment.
Moreover, In Q2, Google Cloud's revenue increased 32% year over year, yielding a 21% operating margin.
While these are strong numbers, Google Cloud's margins can drastically imve from these levels, in today's financial world.
In Q2 of 2024, its operating margin was 11%, so its Q2 2025 numbers represent a significant imvement over the year-ago period.
However, industry leader Amazon Web Services (AWS) dered a 39% operating margin during Q1.
Google Cloud still has a way to go before catching up to AWS, but that's also good news for investors, as it shows there is still plenty of growth in store.
But that doesn't explain why Alphabet trades at such a discount to the market. The market is still concerned the Google engine's future The S&P 500 index (SNPINDEX: ^GSPC) trades for 23.
8 times forward earnings. However, Alphabet's stock trades at a discount to that figure, 20 times forward earnings (something worth watching).
Additionally, GOOGL PE Ratio (Forward) data by YCharts However, this discount doesn't make sense because Alphabet is performing well financially (fascinating analysis).
Furthermore, In Q1, its revenue rose 14% year over year with diluted earnings per (EPS) rising 22%.
Furthermore, Most companies with those growth rates would have a forward price-to-earnings (P/E) valuation in the high 20s to low 30s, but not Alphabet, in today's financial world.
The market is worried Google losing market to various generative AI services -- the very nology that OpenAI just moved onto Alphabet's servers. However, this isn't showing up in Alphabet's results.
In Q2, Google 's revenue increased 12% year over year. Compared to the 10% growth experienced in Q1, this marks an acceleration of growth, ly indicating that Google isn't going anywhere.
Furthermore, Additionally, the strong double-digit growth Alphabet reported is more than enough to outperform the market, which is why s surged the day ing the earnings release.
In contrast, Still, that's not nearly enough of a gain to value Alphabet among its big peers.
The combined catalyst of ChatGPT running some of its workloads on Google Cloud's servers and the realization that Google isn't fading away anytime soon should be enough to convince the market that Alphabet's stock is worth far more than it's valued at today, given current economic conditions.
As a result, I believe Alphabet is one of the top stocks to buy now, as it offers value in a market that has become increasingly expensive.