Will Alphabet Stock Soar After Oct. 28? History Offers an Answer That’s Strikingly Clear.

Key Points

• Alphabet has seen revenue soar amid the AI boom, but the company has spent heavily to support growth.

• The stock has advanced about 7% this year.

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has played a significant role in the artificial intelligence (AI) story so far, and that’s helped supercharge revenue growth and stock performance. The company develops AI products and services, uses them to improve its own business, and offers them to customers through its Google Cloud unit.

Given high demand for AI capacity, Alphabet has been one of the key players involved in the infrastructure build-out. Alphabet, Amazon, Microsoft, and Meta Platforms together plan to spend more than $700 billion this year on the ramp-up. So, the pace of AI growth depends, to a certain degree, on these leading players.

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With this in mind, investors closely watch these companies as they are well-positioned to benefit from AI growth — if the AI story continues to unfold as expected. And that brings us to the date of Oct. 28, which could represent a catalyst for Alphabet. Will the stock, which has climbed about 7% this year, soar after that date? History offers an answer that’s strikingly clear.

The strength of Google Search

Let’s start off by considering Alphabet’s path so far. The company built its solid billion-dollar revenue stream thanks to something that we all know well: Google Search. It has been steadily No. 1 in search, holding 90% of the market, and advertising across the Google platform has driven revenue over time. Advertisers, knowing we look for various types of information through Google, seek to reach us there about their products and services.

In the second quarter, Google advertising made up 68% of Alphabet’s total $119 billion in revenue.

Though this clearly continues to be Alphabet’s bread and butter, AI is progressively proving itself to be a powerful revenue driver for the company. Alphabet has developed its own family of large language models, Gemini, and is using this LLM to improve Google Search and the advertising experience — as a result, advertisers may spend even more here in the future.

At the same time, Alphabet offers Gemini to customers through Google Cloud, and demand for this and other AI capabilities has skyrocketed. In the quarter, Gemini reported an 82% increase in Google Cloud revenue to more than $24 billion, driven by enterprise AI solutions and enterprise AI infrastructure.

Spending heavily to serve demand

But as I mentioned above, Alphabet is spending heavily to serve this demand. Capital expenditures totaled about $44 billion in the quarter to support the AI build-out, with 60% of the infrastructure investment in servers and 40% in data centers and networking.

Investors have been enthusiastic about the growth, but on occasion, they’ve worried about the depth and speed of the capex increases — and that’s weighed on Alphabet stock from time to time.

Now, let’s consider the event coming up on Oct. 28 and what history tells us about stock performance. Alphabet is scheduled to report third-quarter earnings after the market closes. History tells us that, in the two weeks following the past four quarterly reports, Alphabet stock has advanced three times.

So, recent history has a strikingly clear message for us: Alphabet stock may soar after its upcoming earnings report. It’s also important to note that the message regarding AI growth could support this. Demand has been strong throughout the AI boom, and tech companies such as Taiwan Semiconductor Manufacturing and ASML Holding, which have already reported earnings, have spoken of ongoing solid demand.

Of course, the one area that may weigh on investors’ minds continues to be the levels of capex. Some investors have worried that tech giants are overspending, so this concern could get in the way of a positive stock performance from Alphabet after its report.

What does all of this mean for you as an investor? History says Alphabet may soar after Oct. 28, but the most important thing to focus on is a company’s long-term earnings prospects and stock performance potential. And here, there’s reason to be optimistic about Alphabet, making it a great stock to own as this AI boom continues to unfold.

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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Meta Platforms, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.