From Search Giant to AI Compounder: What Really Drove Google Stock 63% Higher

March 20th, 2026 by Trefis Team
GOOGL: Alphabet logo
GOOGL
Alphabet

Question: What drove GOOGL stock up 63% since early 2025?

Google’s stock run is a more balanced story – the business genuinely accelerated, and investors paid up for it. It went from $188 early last year to $307 today – a 63% gain. Decompose it, and you get roughly 40 percentage points from P/S multiple expansion (6.6x to 9.2x) and about 17 points from revenue per share growth. That’s a notably different split from most re-rating stories: the underlying business contributed meaningfully, which gives the multiple expansion far more credibility.

 

Part 1: The Revenue Story – The Growth Is Real

Did the business actually grow? Significantly. Revenue jumped from $350B in 2024 to $403B – 15% growth. Shares outstanding actually declined 1.3% thanks to buybacks, pushing revenue per share up 17%. Both factors worked in the same direction.

What drove the revenue growth? Two distinct engines, one old and one new.

The old engine held. Search, which accounts for roughly 56% of total revenue, kept growing double-digits throughout 2025. AI Overviews and Circle to Search deepened user engagement rather than disrupting it – a key fear that did not materialise. YouTube crossed $60 billion in annual revenue across ads and subscriptions for the first time, making it a standalone business of enormous scale.

The new engine accelerated hard. Google Cloud went from 28% growth in Q1 2025 to 32% in Q2, 34% in Q3, and a remarkable 48% in Q4 – finishing 2025 at a full-year revenue of $58.7B, with a Q4 annualised run rate exceeding $70B. This isn’t just volume growth; operating margins in Cloud expanded 950 basis points from 14.1% in 2024 to 23.6% last year. That combination – faster growth and faster margin improvement – is rare and exactly what investors pay premium multiples for.

The result: annual revenues exceeded $400 billion for the first time ever.

Part 2: The Multiple Expansion – Paying Up for an AI Company, Not Just a Search Company

If the business grew 15%, why did investors pay an additional 40% more for each dollar of that revenue?

The market was repricing what kind of company Alphabet is.

  1. The AI Fears Didn’t Come True – And Then AI Became a Tailwind: The dominant fear through 2023–2024 was that ChatGPT and AI-generated answers would cannibalize Google Search. That narrative collapsed through 2025. Search saw more usage than ever, AI Overviews drove higher engagement, and the Gemini app grew to over 750 million monthly active users. The market had been applying a structural discount to GOOGL for existential AI risk. When that risk didn’t materialise – and AI became a revenue driver instead – the discount unwound sharply.
  2. Cloud Became a Growth Story Investors Could Underwrite: Google Cloud’s backlog at the end of 2025 stood at $240 billion – more than doubling year-over-year and growing 55% quarter-over-quarter in Q4 alone. Backlogs matter because they give investors forward visibility into revenue. When a business has $240B of contracted future revenue, paying a higher multiple on current revenue is rational. The market re-rated Cloud from a distant third-place laggard to a structurally growing enterprise AI platform with real momentum.
  3. The Portfolio Is No Longer Just a Cost Centre: For years, Google’s “Other Bets” were dismissed as expensive experiments – loss-making ventures that dragged on margins without a credible path to value. That framing is shifting. Waymo is now delivering roughly 450,000 paid weekly rides across San Francisco, Los Angeles, Phoenix, and Miami – not a pilot, a commercial operation – and recently raised capital at a valuation approaching $125 billion. Separately, Alphabet holds a ~7% stake in SpaceX, which is approaching an IPO. Neither asset shows up in current revenue figures, but investors are increasingly pricing them in. The “Other Bets” discount is slowly becoming an “Other Bets” premium.
  4. Margin Expansion Changed the Profitability Narrative: Operating margins held steady around 32% even as Alphabet committed to $91 billion in 2025 capex – a significant step-up in AI infrastructure investment. Investors were watching for margin compression from this spending. It didn’t happen at the magnitude feared. Net income grew nearly 30% in Q4 2025 on 18% revenue growth. When a company is growing faster and getting more profitable simultaneously, its P/S multiple should expand. It did.
  5. Buybacks Added a Tailwind: With shares outstanding declining 1.3%, Alphabet was actively returning capital even while investing aggressively in AI. This signals management confidence in cash generation and adds a floor to the stock – another reason to pay up.

The Overhang That Keeps the Multiple in Check

So why isn’t GOOGL trading at an even steeper premium? Antitrust. But that picture, too, has evolved significantly.

The bigger of the two cases, the DOJ search monopoly ruling, saw a major pivot in late 2025 but remains contested in the courts. In September 2025, the court rejected structural remedies like breaking off Chrome and instead imposed behavioral fixes, primarily banning exclusive default search agreements with Apple and other device makers. While this was far milder than the market had feared, the DOJ and 35 states filed a formal notice of appeal in February 2026, specifically challenging the court’s refusal to order a breakup. Consequently, while the “existential risk” discount has partially unwound, a shadow of legal uncertainty will persist until the appeals process concludes.

What remains is the ad-tech case, where the DOJ is still pursuing remedies that could include divestiture of Google’s AdX exchange. This is a real, unresolved risk – and it explains why GOOGL’s forward P/E of approximately 27x sits modestly above its 5-year average but is not at the kind of steep premium its Cloud growth trajectory alone might otherwise command.
The resolution of the ad-tech case is arguably the single biggest remaining catalyst – in either direction.

Bottom Line

GOOGL’s 63% run is the more complete version of a stock re-rating – the business earned it, and the market rewarded it. Revenue grew 15%, driven by Search holding firm and Cloud accelerating dramatically. The multiple expanded 40% as the market stopped discounting Google for AI risk and started pricing it as a beneficiary. The remaining gap between current valuation and where it could trade sits squarely on one open question: what does the ad-tech remedy look like when it lands?

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